Morgan Stanley Upgrades Zscaler On Rapid Growth Of Cloud Adoption And Demand For Security Architecture

Zscaler Inc’s ZS revenue growth could accelerate in 2022, given strong demand in the industry and the company’s larger deal sizes and improving sales productivity, according to Morgan Stanley.

The Zscaler Analyst: Analyst Hamza Fodderwala upgraded the rating for Zscaler from Equal Weight to Overweight, while maintaining his price target at $325.

The Zscaler Thesis: Increasing cloud adoption and rapid hybrid workforce growth have created challenges for organizations “to secure employee access to applications and data, while limiting the effectiveness of traditional on-premise network security,” Fodderwala said in the upgrade note.

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“While we have long seen Zscaler as a leading beneficiary of this secular trend, we think the pace of change has further accelerated in their favor coming out of the pandemic and enterprises are increasingly focused on modernizing their network security architectures for the Cloud,” the analyst wrote.

“The result is a growing pipeline of larger strategic transactions for Zscaler in 2022, based on our recent check,” he added.

Fodderwala projects “20-30%+ upside to CY22/23e consensus” and expects Zscaler to generate revenue growth of “40%+ CAGR over the next 5 years.”

ZS Price Action: Shares of Zscaler are up 2.85% Tuesday morning, trading at $262.03.