Why Wall Street Analysts Are Upgrading This Tech Stock's Price Target Today

Investing

Published: March 6, 2025 10:47 am

Last Updated: March 6, 2025 10:48 am

Cybersecurity star Zscaler (NYSE: ZS) reported strong earnings Wednesday night, and Wall Street didn’t stint on the applause. Responding to news of the company’s top-and-bottom line earnings beat, analyst Catherine Trebnick at investment bank Rosenblatt raised her firm’s price target on Zscaler to $235, a price 15% higher than where Zscaler stock trades after popping on the earnings news Thursday.

She also thinks you should buy the stock. And Trebnick was not the only analyst bullish on Zscaler. BTIG raised its price target to $252 from $238 (Buy), Citi to $240 from $235 (Buy), JPMorgan to $250 from $240 (Overweight), and RBC Capital to $250 from $230 (Outperform), all citing strong Q2 results, improved billings, and confidence in growth. Wells Fargo lifted its target to $210 from $190 (Equal Weight), noting solid results but unchanged second-half guidance.

Key Points

Zscaler crushed sales and earnings estimates on Wednesday night.
Zscaler predicts sales growth of 22% this year.
Investment bank Rosenblatt has raised its price target on the shares, and urges investors to buy the stock.
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According to Trebnick, Zscaler is showing “demonstrable improvements in performance” in the form of both “improving billings growth and margin expansion.” Management is raising its guidance for fiscal 2025, which Trebnick (understandably) takes as proof of “the company’s continued confidence in the future.” The analyst herself seems confident that Zscaler will grow revenue 25% this year, and is on a path to long term, sustainable, durable growth.

Zscaler by the numbers

Now how well do the data back up Trebnick’s optimism?

Turning to the earnings report, we find that Zscaler grew earnings 23% year over year in its fiscal second quarter. (That’s the quarter reported last night by the way; Zscaler’s fiscal calendar runs a little faster than the rest of the world’s). Quarterly revenue was $647.9 million, and quarterly billings grew 18% to $742.7 million.

Is this good or bad news? Well, revenue tells you how much money came in to Zscaler in during Q2. Billings represent the invoices the company sent out, which may or may not have yet been paid. As such, billings are more forward-looking, and give you better insight into how revenue might grow in future quarters. In that regard, billings growing slower than revenue is usually a bad sign.

That being said, even 18% growth is nothing to sneeze at. And Zscaler’s “earnings” improved as well, with non-GAAP profits growing 28%, and GAAP losses shrinking 73%. Per share, Zscaler lost $0.05 per share, GAAP, versus a $0.19 loss in last year’s Q2.

Rounding out the good news, Zscaler reported 42% growth in free cash flow for the quarter, to $143.4 million.

Is Zscaler stock a buy?

Turning to guidance, Zscaler said it expect something on the order of $2.65 billion in revenue this year, and non-GAAP profits between $3..04 and $3.09 per share. To be honest, I’d prefer to see the company give guidance in the form of GAAP profit, or even better, free cash flow. When working a valuation, it’s better to work with more verifiable numbers.

Still, just the revenue guidance alone tells us that Zscaler is growing at at least 22%. If free cash flow only matches that pace, the company should generate about $775 million in positive free cash flow this year, resulting in a pricey 39-times free cash flow valuation. For Zscaler to be a “buy” as Trebnick asserts, therefore, I’m going to want to see this stock continue growing free cash flow much faster than revenue.

Tune back in for Q3 results to see how that’s going.