Wall Street Weighs In On Zscaler As Analyst Quiet Period Expires

The analyst quiet period on Zscaler Inc. ZS is over, and several analysts initiated coverage of the newly public stock this week.

Here’s an overview of what Wall Street thinks of the cloud-based IT security company.

Voices From The Street

Goldman Sachs analyst Gabriela Borges said Zscaler’s cloud security business certainly gives the company plenty of room for long-term growth, but the stock’s valuation is already appropriately optimistic.

“We view Zscaler’s technology as transformational, and at the intersection of several secular tailwinds including the move to cloud-hosted applications, the consolidation of security spending, and the adoption of software-defined networking,” Borges wrote.

Morgan Stanley analyst Melissa Franchi said Zscaler has exposure to attractive long-term business themes, addresses a large market of legacy vendors and has a business model with impressive economics. “But 13x EV/CY19 revs already prices in significant success, leaving limited room for upside,” Franchi wrote.

Credit Suisse analyst Brad Zelnick said investors should be comfortable paying the steep price to get in on Zscaler’s disruptive technology, its first-mover advantage and its wide competitive moat.

“While relative valuation appears rich, we believe Zscaler’s opportunity is large enough, its secular tailwinds great enough, its offerings compelling enough, and its management team sufficiently capable to execute on its opportunity, exceed embedded expectations, and eventually deliver shareholders profitable long-term growth, in-line with its target model,” Zelnick says.

BTIG analyst Joel Fishbein, Jr. said Zscaler has 600 man-years of development and more than 100 issued and pending patents protecting its cloud-native security platform from the competition. “After a successful IPO, the shares are not inexpensive, but we still think this is a must-own name given Zscaler’s transformational nature,” Fishbein wrote.

Ratings And Targets

Wall Street tends to see Zscaler as a high-risk/high-reward stock at its current valuation. While stocks that fit that description can be a bit of a gamble, some analysts are more willing to take that bet than others:

• Morgan Stanley has an Equal-Weight rating and $26 target.
• Goldman Sachs has a Neutral rating and $25 target.
• Credit Suisse has an Outperform rating and $33 target.
• BTIG has a Buy rating and $33 target.

Zscaler traded around $28.26 at time of publication, up 6.4 percent on the day.

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