Bank Of America Upgrades Zscaler Following Big Sell-Off

Zscaler Inc’s ZS shares have declined by a massive 48% since July, while the company appears well-positioned to sustain high growth, according to Bank of America.

The Analyst

BofA’s Daniel Bartus upgraded Zscaler from Neutral to Buy while raising the price target from $65 to $68.

The Thesis

There are several key trends that support an outperformance by Zscaler’s stock, Bartus said in the note.

The analyst expects the adoption of software-defined wide area network (SD-WAN) to grow, as all enterprises were looking to cut down multiprotocol label switching (MPLS) costs. He added that Zscaler’s SD-WAN architecture helps customers lower MPLS costs by around 60%.

“By outsourcing the network security to Zscaler’s cloud, customers can realize equipment/data center cost savings, better network performance, simplified security management, and often achieve better security,” Bartus wrote.

He further mentioned that this scenario was true both for direct customers and for firms delivering Zscaler as a managed service.

Bartus said that the company could reach revenues of $2 billion in 2025. He explained that while growth in the secure web gateway (SWG) market represented an $800 million revenue opportunity for Zscaler in 2025, the company could also benefit from “increased traction with other recently added security services.”

Price Action

Shares of Zscaler were up 9.18% to $50.57 at the time of publishing on Monday.