Zscaler upgraded at Morgan Stanley, citing potential for accelerating revenue growth
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Zscaler (NASDAQ:ZS) is getting an upgrade from Morgan Stanley, as the investment firm believes the IT security company can accelerated revenue growth this year, citing "a strong pipeline of larger deals in '22."
Analyst Hamza Fodderwala upgraded the stock to overweight from equal weight and kept his $325 price target, noting that the firm is helping modernize security architecture on the cloud and has a number of large deals coming this year.
Despite the rising rate environment that has hurt high multiple tech stocks, Fodderwala wrote Zscaler (ZS) could outperform "given potential for accelerating [revenue] growth and significant upside to [forward] estimates."
Zscaler (ZS) shares are up 0.5% to $256.01 in pre-market trading on Tuesday.
Fodderwala added that cloud adoption is growing and a hybrid workforce is creating challenges for companies to keep employee access and information secure.
"This trend favors a more dynamic approach offered by Zscaler's Cloud Security Platform, which helps organization gradually move away from the traditional corporate network edge as the central point of security policy enforcement and syncs more closely to modern computing architectures centered around Cloud adoption," Fodderwala explained.
"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 added that Zscaler (ZS) is likely to deliver 40% annual growth over the next five years and while its valuation "may be challenging in a rising rate environment," its earnings multiple may prove "durable" as revenue growth continues to rise and it outperforms its peers.
Earlier this month, Zscaler (ZS) was upgraded to buy at UBS, with the investment firm saying the market is not appreciating the company's bookings growth and sales efficiency, which are both "strong indicators of sustainable 30% growth."