On Thursday, KeyBanc Capital Markets adjusted its stance on Zscaler (NASDAQ:ZS) stock, upgrading the cybersecurity firm from Sector Weight to Overweight. The firm also set a new price target of $220 for Zscaler, signifying confidence in the company's growth prospects.
The upgrade follows KeyBanc's first-quarter 2024 IT Value-Added Reseller (VAR) survey, which highlighted several factors that bolstered the firm's outlook on Zscaler. KeyBanc's analyst cited a more constructive view on the competitive landscape and positive feedback from channel partners and the survey. These elements are seen as indicators of Zscaler's strong position in the market.
Key developments driving the upgrade include catalysts to Secure Access Service Edge (SASE) adoption following the Ivanti partnership, the ongoing weakness in the firewall sector, and the increasing prioritization of SASE solutions by businesses. The analyst believes these factors could significantly contribute to Zscaler's future growth trajectory.
Additionally, the analyst noted that Zscaler's stock now trades in line with peers that are also experiencing growth rates above 20%, rather than at a premium, which was the case over the past two years. The previous average premium was 4.5 times higher than that of its peers.
The price target of $220 is based on an 11.8 times enterprise value to revenue (EV/revenue) multiple for the calendar year 2025, which represents a modest premium compared to the 11.2 times multiple of the group with more than 20% growth. This valuation reflects KeyBanc's expectation of Zscaler's sustainable growth and market performance.
InvestingPro Insights
Following KeyBanc Capital Markets' upgrade of Zscaler, the InvestingPro platform provides additional insights that may be pertinent to investors considering this cybersecurity firm's stock. Notably, Zscaler holds more cash than debt on its balance sheet and is expected to see net income growth this year. Additionally, analysts have revised their earnings upwards for the upcoming period 33 times, indicating a positive sentiment regarding the company's financial future.
InvestingPro data underscores the company's robust revenue growth, reporting a 40.62% increase over the last twelve months as of Q2 2024. Moreover, Zscaler's impressive gross profit margin stands at 77.55% for the same period. Despite a significant P/E ratio of -185.03, which suggests high expectations for future earnings growth, the company's strong revenue and gross profit figures could justify investor confidence.
Investors can find more insights, including additional InvestingPro Tips, by visiting InvestingPro. For those interested in a deeper analysis, there are 15 more InvestingPro Tips available, and using the coupon code PRONEWS24 will provide an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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