After a leadership shakeup announced on Tuesday, Wall Street is hungry for profit growth at Toast.
On Wednesday, UBS analyst Rayna Kumar upgraded shares of the restaurant technology company to a Buy from Neutral citing "improved potential for quarterly net new location adds and margin expansion" in addition to an expected seamless transition to a new CEO.
Aman Narang, the co-founder of Toast who currently serves as the chief operating officer, will take the top seat, effective Jan. 1, 2024. Meanwhile, Chris Comparato, who has been CEO since February 2015 and took the company public in September 2021, will step down from the helm of the company but remain on its board.
Following the announcement, Toast stock spiked 5.2% at the market open Wednesday but turned 1% lower by afternoon trading. Over the past 12 months, shares have risen nearly 20%.
C-suite turnover in the tech and restaurant sectors isn't a new thing. In fact, it's been happening a lot this year. In Toast's case, UBS doesn't expect any hiccups from the CEO transition.
"We see limited risk from the appointment ... given [Narang's] strategic leadership roles at Toast," Kumar wrote in a note to clients. "According to our conversation with Toast, the transition was a planned event."
William Blair analyst Stephen Sheldon called Narang a "logical successor" in a note to clients, despite some investor concerns.
"Narang lacks experience running a public company, which some investors may question, although we believe that his experience and familiarity with the company will likely overshadow those concerns," Sheldon wrote. He added he does not believe "this announcement implies any major strategic changes for Toast."
Furthermore, Sheldon said that the leadership change had nothing to do with the "unsuccessful implementation of the $0.99 ordering fee" that received negative attention earlier this summer and sent shares lower by 10%.
Wall Street reacts: Toast rapidly gaining share
As of Wednesday, Wall Street has 11 Buy ratings, 12 Holds, and one Sell for shares of Toast.
UBS said the technology platform meant for restaurants "continues to prove itself as a top provider, evidenced by the recent acceleration of location net adds."
In its latest quarterly report, the company added a record number of locations in more than 7,500 stores or restaurants. The company now has 93,000 locations in total.
Now, Kumar believes Toast could expand locations at a 23% growth rate.
"Toast continues to rapidly gain share in the restaurant point-of-sale market fueled by an industrywide secular shift toward vertically integrated, cloud-based technology solutions."
And the growth is only beginning, per Kumar.
"Over the next 2 years, we believe Toast’s investments should fuel industry-leading 30%+ gross profit growth," the analyst said. "Meanwhile, our review of macro trends make us incrementally more positive on the restaurant industry's near-term growth prospects."
For Q3, the company expects to post revenue in the range of $1.01 billion to $1.04 billion. In Q2, the company missed on earnings but beat on revenue coming in at $978 million, slightly higher than estimates of $947.25 million.
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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