Here's Why Wells Fargo Continues To Recommend Zscaler As A 'Top Pick'

Here's Why Wells Fargo Continues To Recommend Zscaler As A 'Top Pick'
  • Wells Fargo analyst Andrew Nowinski recently had the opportunity to travel with Zscaler, Inc ZS management and came away with a better understanding of the importance of improving channel dynamics. 
  • Traditional resellers like Optiv and system integrators like Accenture plc ACN were more engaged with the company and were originating more deals than just fulfilling orders. 
  • He believes these changes will drive long-term growth. 
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  • Management also reiterated their commitment to expanding the operating margin and will increase focus on profitability if the macro worsens. 
  • Based on last week's commentary from channel partners at the CrowdStrike Holdings, Inc CRWD event, he believes overall demand could improve relative to June/July trends. 
  • If demand has improved, Zscaler's billings and revenue guidance for 1Q23 could prove conservative. 
  • As such, he reiterated an Overweight rating and $225 price target and continues to recommend ZS as a top pick.
  • His price target multiple is a premium to the peer group average of 12.4x, but higher long-term growth assumptions justify it. 
  • Analysts had bumped Zscaler's price targets after it reported better-than-expected Q4 results and issued sales guidance above estimates.
  • Price Action: ZS shares traded higher by 1.27% at $160.71 on the last check Monday.

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