On Thursday, UBS analyst Roger Boyd raised the price target for Zscaler shares to $260 from the previous $250, while maintaining a Buy rating on the stock. Currently trading at $210.23, Zscaler has demonstrated strong performance, posting a 25.3% gain over the past six months. Analyst targets for the stock range from $180 to $270, based on data from InvestingPro.
Key Reasons Behind Boyd’s Increased Price Target:
Strong Performance in Q4 Billings: Zscaler’s fourth-quarter billings exceeded expectations by 3%, with a 5-point acceleration compared to the first quarter of the fiscal year. This strong performance fueled Boyd’s optimism about the company’s future growth trajectory.
Unchanged Second-Half Guidance: The company’s unchanged second-half guidance was seen positively by the analyst, signaling consistency in Zscaler’s growth prospects.
Impressive Fundamentals: According to InvestingPro analysis, Zscaler maintains a robust 77.85% gross profit margin and has achieved 27.77% year-over-year revenue growth, showcasing its solid financial foundation.
Sales and Platform Expansion: Boyd highlighted management’s optimistic views on sales productivity, platform expansion, and the opportunity within the US Federal market, where Zscaler has penetrated only 10% of the available seats. These factors are expected to drive further billing ramp-up in the second half of the fiscal year.
New Customer Growth: Boyd also pointed to Zscaler’s ZT Branch sales, which saw half of the sales in the second quarter coming from new customers. Some of these new engagements led to deal values doubling, showing the company’s growing competitiveness, particularly in the market for firewall refreshes.
Revised Billings Estimate: Boyd adjusted his billings estimate for Zscaler, reflecting a 1% increase due to the company’s strong performance. The analyst views the stock’s valuation—31 times the FY26 enterprise value to free cash flow (EV/FCF) ratio—as attractive given expectations for high-teens revenue growth and FCF margin expansion into FY26.
Positive Outlook from Other Analysts:
Stifel analysts maintained their Buy rating with a price target of $235, citing Zscaler’s strong revenue, billings, and margin performance, as well as increased guidance for fiscal year 2025.
Cantor Fitzgerald raised their price target to $220, acknowledging Zscaler’s successful second-quarter results and solid execution strategy despite economic challenges.
TD Cowen reiterated a Buy rating and a $270 price target, praising Zscaler’s balanced growth and profitability, particularly driven by the adoption of Zero Trust and AI solutions.
RBC Capital Markets increased its price target to $250, citing the company’s strong financial performance and management’s confidence in the demand environment.
BMO Capital Markets raised their price target to $233, driven by the company’s solid quarter and growth in Remaining Performance Obligations (RPO), a critical indicator of future revenue.
Strategic Focus on Zero Trust and AI:
Across the board, analysts have noted Zscaler’s strategic focus on Zero Trust and AI solutions, positioning the company for continued growth and market expansion. These developments contribute to an overall positive outlook for Zscaler, with expectations of the company leveraging its strengths to capitalize on industry trends.
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