Zscaler is a market leader, Barclays says, upgrading shares
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Zscaler (NASDAQ:ZS) got a bump at Barclays on Monday after the firm upgraded the cloud security company and called it a leader.
The firm moved shares to Overweight from Equal Weight and increased its price target to $190 from $176. 
Barclays likes the growth opportunity in secure access service edge, or SASE, âwhich could be as big as network security in [calendar 2026], and we think ZS is a leader.â 
Shares climbed 4% on Monday on back of the upgrade.
Barclays added that the total addressable market for SASE, where Zscaler operates, is worth between $5B and $9B and is likely to grow somewhere between 20% and 35% through 2026, based off estimates from research firms Gartner and IDC.
âGiven SASE's growth profile and ability to become one of the biggest sub-segments in the security market, we want more exposure to this market, and we think Zscaler is a leader,â analysts led by Saket Kalia, wrote in a note.
âWe believe ZS will continue to gain share in SASE given its first-mover advantage (particularly in secure web gateway and zero trust network access), expansive data center footprint, and established presence with large enterprise customers.â
Government contracts
Barclays also sees a âgrowing platform story with [Zscaler digital experience], Zscaler for Workloads, and data protection, some of which are progressing slightly faster than its successful [Zscaler private access] product.â 
Zscaler's (ZS) offerings including data protection and AI can allow it to sell more products to a wider base of customers, Barclays said.
âWe think another growing story could be in data security, where ZS has been able to replace some existing [data loss prevention] vendors with its data security offerings as customers consolidate spending,â the analysts wrote.
Government agencies are also building zero trust architectures and signing large deals for certified security products like ZIA and ZPA, and there could be more opportunity there. 
The firm raised its 2024 estimated billings to the high end of guidance âwith more confidence in this long-term market and long-term margin expansion.â 
Zscaler (ZS) should see an increase of roughly 200 basis points of EBIT margin and approximately 250 basis points in free cash flow in fiscal 2025 and 2026 as contribution margin on existing customers increases over time and capital spending normalizes after 2024. 
Analysts are mixed on Zscaler (ZS). It has a HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates the stock a HOLD.
Shares are up more than 54% year-to-date.

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