Zscaler stock PT raised as Loop Capital expects higher cash estimates for FY27+

On Monday, Loop Capital adjusted its price target for Zscaler (NASDAQ:ZS), a leading cybersecurity firm, increasing it to $200 from the previous $165 while maintaining a Hold rating on the company's stock. The adjustment reflects higher cash flow estimates for the outer years, specifically beyond fiscal year 2027.

The firm's analyst noted that despite mixed signals from industry checks, Zscaler is not experiencing any significant increase in competitive pressure. The company is contending with challenges from major competitors like Microsoft (NASDAQ:MSFT) and Palo Alto Networks (NASDAQ:PANW), as well as other Secure Access Service Edge (SASE) vendors.

Zscaler is also in the midst of a sales transition, aiming to shift its sales model under new leadership to focus more on account-centric strategies.

Renewals are becoming a more substantial part of Zscaler's business, and although there is some pressure on this front due to slower headcount growth among customers, particularly affecting the Zscaler Private Access (ZPA) service, the situation has not deteriorated over the past quarter.

While Zscaler's emerging products are increasingly contributing to new business, the company is still not widely regarded as a comprehensive platform provider, which poses a challenge when it comes to upselling to its existing customer base.

Loop Capital anticipates a slight outperformance relative to the Street's first-quarter billings growth estimate of 10% year-over-year. This outlook is based on a projection of 13% billings growth in the first half versus 23% in the second half, owing to greater seasonality in the company's annual billings of contracts not up for renewal.

Consequently, the analyst expects Zscaler to maintain its fiscal year 2025 billings growth guidance, considering the increasing weight of billings towards the second half of the year.

Zscaler is scheduled to report its fiscal first-quarter results on December 2nd, after the market close. The report will provide further insights into the company's financial performance and its ability to navigate the competitive landscape in the cybersecurity sector.

In other recent news, Zscaler, a leader in cloud security, has been the subject of multiple analysts' notes and strategic developments. TD Cowen reaffirmed a Buy rating for Zscaler, citing key growth indicators such as a robust 20% growth in non-scheduled billings and improvements in the company's go-to-market organization.

Baird and Wedbush also maintained their 'outperform' rating on Zscaler, expressing confidence in the company's future, while Bernstein adjusted its price target for Zscaler shares to $238.00 but maintained an Outperform rating.

Zscaler's fourth fiscal quarter of 2024 financial results outperformed consensus estimates, with revenues surpassing predictions by over 4% and earnings per share reaching $0.88. However, the company's fiscal 2025 revenue and profit forecasts fell short of Wall Street expectations.

In the realm of strategic developments, Zscaler announced the appointment of Adam Geller as its new Chief Product Officer, a move expected to drive product innovation and growth.

Additionally, Zscaler and CrowdStrike (NASDAQ:CRWD) revealed new integrations aimed at enhancing cybersecurity operations through advanced threat detection, response, and risk management.

InvestingPro Insights

As Zscaler (NASDAQ:ZS) approaches its fiscal first-quarter earnings report on December 2nd, InvestingPro data and tips offer additional context to Loop Capital's analysis. Despite the challenges highlighted in the article, Zscaler's financials show some promising aspects. The company boasts impressive gross profit margins of 78.08% for the last twelve months as of Q4 2024, reflecting strong pricing power in its cybersecurity offerings. This aligns with the article's mention of Zscaler's competitive position against major players like Microsoft and Palo Alto Networks.

An InvestingPro Tip indicates that net income is expected to grow this year, which could be a positive sign for investors concerned about the company's profitability. This expectation may be linked to the anticipated outperformance in billings growth mentioned by Loop Capital. Additionally, Zscaler operates with a moderate level of debt, potentially providing financial flexibility as it navigates its sales transition and focuses on account-centric strategies.

It's worth noting that InvestingPro offers 7 additional tips for Zscaler, providing a more comprehensive analysis for investors looking to delve deeper into the company's prospects.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.