Cantor upgrades Zscaler on strong execution and demand trends

Investing.com -- Cantor Fitzgerald upgraded Zscaler Inc (NASDAQ:ZS) to "Overweight" from "Neutral" on strong execution and increasing demand trends that could drive a re-rating of the stock.

Brokerage raised price target to $250 from $220, expecting accelerating billings, revenue growth, and broader adoption of the company’s cybersecurity platform.

Cantor believes Zscaler is well positioned as a leader in Zero Trust security, with the potential for approximately 20% revenue growth over the next few years.

The stock is currently trading at 11.5 times estimated fiscal 2025 revenue, slightly below the peer group average of 12.0 times, which the firm sees as an opportunity for investors.

Zscaler is benefiting from increased adoption of Secure Access Service Edge (SASE), a cloud-based approach to network security that is expected to grow significantly in the coming years. Industry estimates suggest SASE penetration is currently in the low to mid-teens but could exceed 50% by 2027.

Cantor sees similarities between the rise of SASE and the early days of network security, which supported strong growth for multiple vendors.

Zscaler’s ongoing innovation, like introduction of its Asset Exposure Management product extends security beyond traditional network perimeters.

Additionally, customer adoption of the company’s broader Zero Trust Exchange platform is increasing, with strong growth in new bookings and expansion into areas such as workload security and AI-driven analytics.

Zscaler’s sales execution has improved, with a more solution-oriented approach under new Chief Revenue Officer Mike Rich, who joined in November 2023.

Channel partners and customers have noted a shift towards a more collaborative sales strategy, helping to drive double-digit net new annual contract value growth in the second quarter of fiscal 2025.

Federal demand for Zscaler’s security solutions remains positive, despite some concerns over government budget constraints.

Reseller feedback has also been strong, with increased demand for core products like Zscaler Internet Access and Zscaler Private Access.

Additionally, partners have reported growing success in selling workload security solutions, which contributed to record annual recurring revenue for that segment.

Cantor expects Zscaler’s continued momentum, combined with margin expansion and increasing customer adoption, to support further upside in fiscal 2025 and beyond.