- Needham repeats analyst Alex Henderson Zscaler Inc ZS with a strong buy and a Price target $210.
- While ZS doesn’t offer quarterly updates on conditions, it said its GTM bundling program is delivering a strong pipeline despite the softer macro conditions.
- The analyst thinks Zscaler’s architecture is superior Palo Alto Networks, Inc PANW Prisma Cloud, but Palo has strong brand and channel loyalty. As a result, Palo has generally won against ZS in its customer base, and Zscaler has usually won outside of Palo’s tribe. Both companies delivered strong results in a strong market.
- The analyst’s field tests found Zscaler’s increasing ability to unexpectedly win within Palo’s footprint. While Palo remains consistently strong on analyst field reviews, he thinks ZS deserves another look from investors as well.
- Unnerved by weaker macro conditions, investors were reluctant to invest in the high-growth security software names, preferring the relative safety of the slower-growing Palo Alto. While it’s difficult to dispute this tactical bias, the analyst believes ZS’ stock price does not reflect the strength of its competitive position, pipeline and margin expansion.
- The analyst expects ZS to roughly double its operating margin over the next three years, even as it drives long-term growth of over 30%.
- With a trailing operating margin of 12%, the analyst estimates Zscaler will grow over 40% in FY23 and over 30% longer term.
- Additionally, management recently raised its revenue and margin guidance.
- The analyst expects operating margin to exceed 20% over the next three years.
- Price promotion: ZS shares traded 0.58% higher at $105.56 on the latest check Tuesday.
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