Toast's (TOST) 2025 growth prospects look promising given company's market leadership in vertical technology and an expanding total addressable market, or TAM, Morgan Stanley said Friday in a note.

The restaurant sales and management software provider is likely to outperform its initial 2025 EBITDA guidance, Morgan Stanley said, noting also that the company's gross profit growth is "significantly undervalued."

"Toast continues to demonstrate its Vertical technology leadership, consistently showcasing its ability to efficiently gain share and monetize against an expanding opportunity," Morgan Stanley said.

The Wall Street firm reaffirmed its overweight rating on the stock while raising the price target to $46 from $45. It sees Toast's stock trading at a 35% discount to the company's peers.

"Clear evidence of a larger TAM, a [go-to-market] flywheel still gaining steam, product differentiation and innovation underpinning its competitive differentiation, and disciplined allocation of capital all contribute to the underappreciated durability of profitable growth," Morgan Stanley said.

Shares of the company were down more than 4% in recent trading.

Price: 35.40, Change: -1.81, Percent Change: -4.86