Piper Sandler raises Zscaler stock price target to $280 on strong results

Zscaler (ZS) reported robust fiscal Q4 results, outperforming expectations with strong billings, over $3 billion in annual recurring revenue, and record operating margins, contributing to its 45%+ stock surge over six months. This strong performance led multiple firms, including KeyBanc and JPMorgan, to raise price targets and maintain positive ratings, citing broad-based beats across revenue, profitability, and free cash flow. However, Piper Sandler maintained a Neutral rating despite raising its price target, emphasizing Zscaler's elevated valuation multiples (12x CY26 estimated revenue, 40x FCF) as already reflecting the strong outlook, even with a slightly conservative FY26 organic growth forecast.

Analysis

Zscaler (ZS) delivered a robust fiscal fourth quarter, driving its stock which has already appreciated over 45% in the past six months. The cybersecurity firm reported billings that exceeded expectations by $57 million, representing a 5% beat, and achieved annual recurring revenue (ARR) surpassing $3 billion with a steady 22% quarter-over-quarter growth. Profitability also showed significant strength, with the company hitting record operating margins. This comprehensive outperformance prompted a series of price target increases from firms including KeyBanc (to $350), JPMorgan (to $351), and Rosenblatt (to $330), who cited the beat across revenue, billings, profitability, and free cash flow. However, a note of caution is present. Despite raising its own price target to $280, Piper Sandler maintained a Neutral rating, highlighting a stretched valuation at approximately 12 times calendar year 2026 estimated revenue and over 40 times free cash flow. This valuation is seen as already incorporating the potential for outperformance, a view that tempers the otherwise bullish results, especially with organic guidance for fiscal 2026 coming in at 19%, which was viewed as slightly light.

Key Decisions for Investors

• Investors should weigh Zscaler's demonstrated operational excellence, evidenced by record margins and a 'clean beat' on key metrics, against its elevated valuation which may limit near-term upside.
• Given the stock is priced for high growth, monitor whether the company can consistently exceed its fiscal 2026 organic growth guidance of 19%, as any failure to outperform could trigger a valuation-driven correction.
• The divergence in analyst ratings, with most being bullish while Piper Sandler remains Neutral due to valuation, suggests that new positions should be considered carefully, as much of the positive news appears to be priced in.