Zscaler shares were rising Tuesday, defying a market-wide drop in tech stocks, after the company received an upgrade from Morgan Stanley.
In a research note on Tuesday, analyst Hamza Fodderwala boosted his rating on the stock to Overweight from Equal Weight. The price target was lowered to $325 from $330.
Zscaler (ticker: ZS
) engages in providing cloud-based internet security platforms, and could benefit from growing cloud adoption and an increasingly hybrid workforce that requires secure access to applications and data, Fodderwala said. While Zscaler has been a leader in cloud security, adoption of the company’s Cloud Security Platform will continue to accelerate as these trends progress, he added.
With strong overall demand, larger deal size, and improving sales productivity, Fodderwala expects revenue growth to accelerate, with a compound annual growth rate reaching over 40% over the next five years.
Zscaler’s market currently has spending estimates of $20.2 billion, and could grow to nearly $50 billion over time, Fodderwala said. By launching its signature Cloud Protection program, the company could more than double the market opportunity, he added.
“This market consists of technologies that connect users with applications and layer on a number of security features from encryption and threat protection to data loss protection and access controls,” the analyst wrote.
Last week, UBS analyst Roger Boyd upgraded Zscaler, citing optimism over Zscaler’s rapid growth in cloud security. “While much of this outsized pressure is due to Zscaler’s higher valuation, we think the market is too pessimistic on growth expectations, sales efficiency and competition,” Boyd wrote last Monday. The UBS analyst expects Zscaler to exit fiscal 2024 with 30% revenue growth.
Of the 30 analysts covering the stock, 18 rated it a Buy or Overweight, 11 gave it a Hold, and one rated it an Underweight.
Zscaler stock was up 2.1% to $260.16 on Tuesday. The shares have dropped 17.4% this year, but rose 25.8% last year.
Write to Sabrina Escobar at [email protected]
