Wells Fargo Initiates Coverage on Toast (TOST) with Overweight Rating

Wells Fargo Initiates Coverage on Toast, Inc.

Wells Fargo has initiated coverage on Toast, Inc. (TOST), the restaurant technology platform, with an "Overweight" rating. This move signals a positive outlook from the financial institution, which could influence investor perception and activity surrounding TOST shares.

Analyst Details and Price Target

Analyst Jason Kupferberg of Wells Fargo announced an average one-year price target of $51.21 per share for Toast. This target suggests a substantial 32.85% increase from its latest reported closing price of $38.55 per share. The projected price target range for TOST extends from $37.15 to $63.00, indicating varying degrees of optimism among analysts. This initiation comes as investors continue to assess the growth prospects of companies operating in the specialized technology sector.

Toast's Business Model and Market Position

Toast operates as an end-to-end technology platform catering specifically to the restaurant industry. The company generates revenue through both point-in-time sales of its restaurant-grade hardware and recurring streams from take rates on restaurant transaction volumes and subscriptions to its software solutions. As of fiscal year 2024, Toast provided services to 134,000 restaurant locations, primarily within the U.S., with its typical customer being a mid-market restaurant generating over $1 million in annual revenue. The company's strategic focus on the restaurant vertical aims to reduce customer acquisition costs and leverage AI-driven solutions for enhanced retention and upselling.

Broader Analyst Sentiment and Valuation Metrics

Beyond Wells Fargo's recent initiation, Toast, Inc. holds a consensus rating of "Moderate Buy" among 17 Wall Street analysts, based on 10 buy ratings, 7 hold ratings, and no sell ratings. The average analyst price target for TOST stands at $49.07, representing a 30.26% increase from the current price of $37.67. This average target reflects an 8.47% increase from the previous average of $43.43, indicating a growing bullish sentiment. Recent analyst actions, including upgrades from Truist Securities, Deutsche Bank, and Morgan Stanley, further reinforce this positive trend.

From a valuation perspective, Toast is currently trading at a Forward P/E ratio of 39.93. This compares to its industry average Forward P/E of 29.14, suggesting that Toast is valued at a premium relative to its peers. Institutional ownership of TOST has shown a notable increase of 6.76% in the last three months, reaching 552,876K shares. Furthermore, a put/call ratio of 0.66 indicates a generally bullish outlook among investors regarding the stock's future direction.

Financial Performance and Growth Drivers

Toast reported strong financial results for Q2 2025, signaling a maturation of its unit economics. The company added 8,500 net new locations during the quarter, bringing its global total to 148,000, a 24% year-over-year increase. FinTech and subscription gross profit surged by 35% year-over-year, demonstrating robust growth in its recurring revenue segments. Adjusted EBITDA reached $161 million, with margins expanding by 35%. Both GAAP and non-GAAP gross margins improved to 25.3% and 27.1% respectively, from Q2 2024 levels. The Annualized Recurring Run-Rate (ARR) increased by 31% to $1.9 billion, with both payments ARR and subscription ARR growing by 32% and 30% respectively. Gross Payment Volume (GPV) rose 23% year-over-year to $49.9 billion, highlighting FinTech solutions as a key revenue driver. The company also generated $208 million in free cash flow, underscoring its financial health.

For the full fiscal year, Toast's Zacks Consensus Estimates project earnings of $0.94 per share and revenue of $6.08 billion, representing year-over-year changes of +3033.33% and +22.53%, respectively.

Outlook and Future Implications

Toast's Q3 adjusted EBITDA guidance is projected between $140 million and $150 million, a sequential decline attributed to strategic investments in new markets and higher tariffs. Despite this, management views these investments as a calculated trade-off for long-term value, supported by expansions into Australia and securing enterprise clients like Firehouse Subs. The full-year adjusted EBITDA guidance stands at $575 million. The company faces competition from larger players such as Square and Oracle, as well as potential regulatory pressures on FinTech margins. However, its Q2 results suggest the company has reached a "tipping point," where unit economics and customer acquisition cost trends align with successful B2B disruptors, positioning Toast as a key player in redefining restaurant technology. The strong free cash flow and enterprise expansion are seen as indicators of long-term confidence in its market leadership, suggesting a clear path to self-funding innovation and reduced reliance on capital-intensive growth.