Top Wall Street Forecasters Revamp Zscaler Expectations Ahead Of Q4 Earnings

Zscaler (ZS) is set to report fourth-quarter earnings on Tuesday, Sept. 2, with analysts projecting an EPS of $0.80, a decline from $0.88 year-over-year, yet anticipating revenue growth to $707.14 million. The company recently expanded its partnership with CrowdStrike to enhance cybersecurity protection across various environments. ZS shares closed Friday down 1.2% at $277.05, while recent analyst ratings largely maintain positive outlooks with price targets generally above current levels, providing context for the upcoming earnings report.

Analysis

Zscaler is approaching its fourth-quarter earnings report with a dual narrative for investors to consider. On one hand, the company projects robust top-line expansion, with expected revenue of $707.14 million, a significant increase from $592.87 million in the prior-year period. This growth is complemented by a recent strategic expansion of its partnership with CrowdStrike, enhancing its competitive posture in the cybersecurity market. On the other hand, a key point of concern is the forecasted decline in earnings per share to $0.80, down from $0.88 year-over-year, which may signal margin pressure or increased investment spending. Despite the anticipated earnings contraction and a recent 1.2% dip in the share price to $277.05, analyst sentiment remains largely bullish. Four out of five cited analysts maintain Overweight or Buy equivalent ratings, with several raising price targets to levels substantially above the current stock price, ranging from $300 to $365. This optimism is tempered by a single cautious initiation at a 'Neutral' rating with a $275 price target, highlighting the mixed signals heading into the release.

Key Decisions for Investors

• Investors should closely scrutinize the upcoming earnings report for management's explanation of the divergence between strong projected revenue growth and declining EPS, as this will be critical for assessing future profitability.
• With the stock trading at $277.05, well below most analyst price targets of $300-$365, a positive earnings surprise or strong forward guidance could act as a significant catalyst, presenting a potential opportunity for those with a bullish outlook.
• It is prudent to weigh the predominantly positive analyst sentiment against the clear risk signaled by the projected EPS contraction and the cautious 'Neutral' rating from B. Riley, suggesting a balanced or hedged approach heading into the earnings announcement.