Zscaler's Strong Moat, Robust Pipeline And Margin Expansion Potential To Double Stock Value, Analyst Predicts - Zscaler (NASDAQ:ZS)

Needham analyst Alex Henderson reiterates Zscaler Inc ZS with a Strong Buy and a $210 price target.
While ZS does not offer intra-quarter updates on conditions, it did say its GTM bundling program is delivering a strong pipeline despite the weakening macro conditions.
The analyst believes Zscaler's architecture is superior to Palo Alto Networks, Inc's PANW Prisma Cloud, but Palo has a strong brand and channel loyalty. As a result, Palo has generally won versus ZS in its customer base, and Zscaler has typically won outside of Palo's base. Both companies delivered strong results in a strong market.
The analyst's field checks have suggested Zscaler is increasingly able to win inside Palo's footprint unexpectedly. While Palo continues to be uniformly strong in the analyst's field checks, he thinks ZS also merits another look by investors.
Investors have been spooked by weakening macro conditions and reluctant to invest in the high growth Security Software names preferring the relative safety of slower-growing Palo Alto. While it's hard to argue with this tactical bias, the analyst thinks ZS's share price does not capture the strength in its competitive position, pipeline, and margin expansion story.
The analyst thinks ZS will roughly double its operating margin over the next three years even as it drives 30%+ long-term growth.
At a 12% trailing operating margin, the analyst estimates Zscaler will grow over 40% in FY23 and over 30% longer term.
Additionally, management recently increased its revenue and margin guidance.
The analyst looks for the operating margin to exceed 20% over the next three years.
Price Action: ZS shares traded higher by 0.58% at $105.56 on the last check Tuesday.

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