BofA lifts Zscaler stock price target to $285 on strong results

BofA Securities raised its price target on Zscaler (ZS) to $285 from $240, reiterating a Buy rating, after the company reported strong quarterly results with billings and revenue exceeding expectations, growing 25% and 23% year-over-year, respectively. While Q4 revenue guidance was slightly below Street estimates, BofA remains positive due to strong secular tailwinds and new product rollouts, valuing the company at 13x FY26E EV/Sales. Other analyst actions are mixed, with Bernstein raising its price target and Piper Sandler downgrading the stock due to valuation concerns, despite Zscaler's acquisition of Red Canary and robust earnings.

Analysis

BofA Securities has upgraded Zscaler's price target to $285 from $240, reiterating a Buy rating, following the company's strong quarterly financial disclosures. Zscaler reported a 25% year-over-year increase in billings and a 23% rise in revenue, both surpassing consensus estimates of 21%. This performance was driven by enhanced sales productivity, the introduction of new products, and sustained billings growth. InvestingPro data confirms Zscaler's financial health, showing impressive gross profit margins of 77.86% and robust revenue growth of 27.77% over the last twelve months. The company's recent third-quarter fiscal year 2025 results also exceeded expectations, with revenue reaching $678 million (a 23% year-over-year increase) and earnings per share (EPS) of $0.84, surpassing the $0.76 forecast; annual recurring revenue (ARR) also grew 23% to $2.9 billion. Strategically, Zscaler acquired Red Canary for $675 million to enhance its security operations capabilities. While a slight margin contraction was observed, BofA attributes this to the timing of new product launches rather than a fundamental shift. Zscaler's fourth-quarter revenue guidance of $706 million is slightly below the Street's expectation of $711 million; however, BofA analyst Tal Liani views this as conservative caution amid ongoing economic uncertainties, recommending a focus on positive underlying trends. Despite BofA's optimism, reflected in a valuation of 13x FY26E EV/Sales (up from 11x), other analyst actions are mixed: Bernstein raised its price target to $251, maintaining an Outperform rating, while Piper Sandler downgraded the stock to Neutral, albeit raising its target to $260, due to valuation and future growth concerns. InvestingPro analysis further suggests the stock is trading above its Fair Value, with the RSI indicating overbought conditions, underscoring the valuation debate despite Zscaler's operational strengths and strategic initiatives.

Key Decisions for Investors

• Investors should acknowledge Zscaler's strong operational performance and growth trajectory, as evidenced by recent earnings and billings, but carefully weigh these against current valuation concerns highlighted by Piper Sandler and InvestingPro's Fair Value metrics.
• Monitor the successful integration of the Red Canary acquisition and sustained improvements in sales productivity, as these factors are critical for Zscaler to meet heightened growth expectations and support its premium valuation.
• While Zscaler's conservative Q4 revenue guidance could imply potential for future upside, investors should remain vigilant regarding macroeconomic headwinds and the stock's overbought RSI, which may indicate limited short-term appreciation potential without further positive catalysts.