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On Thursday, Zscaler shares, currently trading at $196.45 with a market capitalization of $30.14 billion, received a steady vote of confidence from TD Cowen, as the firm maintained its Buy rating and a price target of $270.00. Zscaler, a company specializing in cloud-based information security, was praised for its execution and use of artificial intelligence (AI) and Zero Trust solutions to achieve what is known as the Rule-of-45. This financial metric indicates that Zscaler has balanced growth and profitability, with 23% year-over-year revenue growth and 22% free cash flow (FCF) margins for the second quarter of fiscal year 2025.
Zscaler’s emerging products have been particularly successful, showing annual recurring revenue (ARR) growth more than double that of its core offerings. According to InvestingPro data, the company maintains impressive gross profit margins of 77.85% and has achieved robust revenue growth of 27.77% over the last twelve months. The company’s performance is attributed to the growing enterprise adoption of Zero Trust solutions, increased demand for AI-powered capabilities, and an expansion of its large customer base.
TD Cowen’s analysis highlights Zscaler’s strategic moves, including organic development and targeted acquisitions, which have enhanced the company’s product capabilities and broadened its market reach. These efforts have allowed Zscaler to tap into complementary market segments. InvestingPro analysis reveals the company maintains a strong financial health score, with additional insights available in the comprehensive Pro Research Report, part of InvestingPro’s coverage of over 1,400 US stocks.
The company’s serviceable available market (SAM) is now estimated at approximately $96 billion, a significant increase from $72 billion in 2021. This expansion reflects Zscaler’s growing influence in the cybersecurity space and its ability to capture a larger share of the market.
The firm’s reiterated Buy rating and price target of $270, which is approximately 13 times TD Cowen’s fiscal year 2026 estimated enterprise value to revenue (EV/Rev), underscores the firm’s confidence in Zscaler’s growth trajectory and market positioning. Based on InvestingPro’s Fair Value analysis, the stock appears slightly overvalued at current levels. Nevertheless, (NASDAQ:ZS) is poised to continue leveraging its strengths in AI and Zero Trust to meet the evolving needs of its enterprise customers.
In other recent news, Zscaler has reported strong financial results, prompting several analyst firms to adjust their outlooks on the company. RBC Capital Markets increased its price target for Zscaler to $250, citing robust financial performance and improvements in sales strategies, along with a positive outlook for their "Zero Trust Everywhere" initiative. BMO Capital Markets also raised its price target to $233, highlighting a significant year-over-year growth in Remaining Performance Obligations, which signals future revenue potential, and increased Free Cash Flow estimates for the upcoming fiscal years. Bernstein SocGen Group adjusted its price target to $244, noting Zscaler’s improved sales execution and strategic sales changes that are already yielding productivity gains. Truist Securities maintained a $260 price target, emphasizing Zscaler’s success in surpassing guidance metrics and the growth of its emerging products business. On the other hand, Mizuho (NYSE:MFG) Securities slightly reduced its price target to $220, despite acknowledging Zscaler’s strong quarterly performance and improved go-to-market strategy, due to concerns about securing large deals amid competitive market conditions. These recent developments reflect a mixed but generally positive sentiment towards Zscaler’s future prospects.
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