Analyst Ups Zscaler's Price Target On Record Pipeline And Rebounding Federal Business

Stifel analyst Adam C. Borg reiterated a Buy rating on the shares of Zscaler, Inc. ZS, raising the price target to $150 from $135.
Despite a "tougher macro backdrop," the analyst applauds Zscaler's recently-reported third quarter, where earnings surpassed estimates with a rebound in Federal business and record pipeline.
The analyst believes the company executed well in the quarter, adjusting to a "more complex sales cycle," along with some slipped deals.
Looking ahead, Zscaler has a number of drivers to sustain 25%-30%+ growth and margin expansion in the coming years, the analyst mentions.
While macroeconomic woes have been predominant, Zscaler continues to take several steps, such as engaging in a more consultative sales process and partnering earlier with the C-Suite for CFO-ready business use cases with defined ROI/payback periods.
The analyst notes that Zscaler has an advantage in using AI and training large language models for threat prevention, given its 300B+ transactions and trillions of signals per day, which will expand its TAM.
Given the plethora of tailwinds, the analyst raised the FY23 EPS estimate to $1.62 from $1.57. FY23 Sales are expected to be $1.592 billion from the prior estimate of $1.589 billion.
Price Action: ZS shares are trading higher by 7.4% to $145.19 on the last check Friday.

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