Cybersecurity Analyst Expects Strong Zscaler, CrowdStrike Earnings

Cloud security vendors have been one of the beneficiaries of the COVID-19 pandemic amid an increasing need to secure applications and data.

Zscaler Inc ZS and Crowdstrike Holdings Inc CRWD are among the cybersecurity names due to release earnings reports this week. 

Zscaler is scheduled to report first-quarter quarter results Wednesday after the market close, and CrowdStrike will also release its third-quarter results the same day.

The Zscaler, CrowdStrike Analyst: Needham analyst Alex Henderson maintained a Strong Buy rating on Zscaler and increased the price target from $165 to $180.

The analyst maintained a Buy rating on CrowdStrike and upped the price target from $170 to $190.

Needham Recommends Core Position In Zscaler: Zscaler shares have benefited from the company's strong performance over the last several quarters and the increased visibility the substantial build of its sales capacity provides investors, Henderson said in a note.

Investors are confident the company's growth can exceed Street forecasts of 30%-35%, the analyst said.

Zscaler is seeing strong demand for its products, and four new products — OOB CASB, Browser Isolation, B2B and ZDX — will likely add further upside, he said. 

The company has the potential to beat published estimates in calendar years 2021 and 2022 by as much as 20% and drive strong operating margin leverage, Henderson said. 

"We are a buyer of ZS into the print even as re-opening plays seem to be bleeding some momentum from the growth names," the analyst said. 

"We believe this is going to be a major company, and we recommend investors buy these shares, establish a core position, and add on any weakness."

Related Link: Credit Suisse Upgrades Zscaler On Prospects Of Durable Growth

Why CrowdStrike Will Beat Decelerating Forecasts: CrowdStrike is expected to report a strong beat-and-raise quarter, Henderson said.

The company is seeing strong demand for a broad swath of subscriptions in its core business, with several large-size deals and a robust pipeline, the analyst said.

The Street estimates call for CrowdStrike's growth slowing from 84% in the second quarter to 68% in the third quarter and then to 46% growth in the fourth quarter, he said.

"We think Crowd will solidly beat these decelerating forecasts," Henderson said. 

Runtime cloud security, into which the company has expanded, is likely to increase its contribution to total revenues from less than 5% currently to over 30% over five years, even as the core business delivers over 50% growth, the analyst said. 

"We are a buyer into the print." 

CRWD, ZS Price Action: Zscaler shares were up 3.26% at $154.62 at last check Monday, while CrowdStrike shares were 1.04% higher at $152.40. 

Related Link: Josh Brown Buys CrowdStrike, Sells Prologis