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Zscaler Initiated Overweight on Disruptive Strength

Zscaler is the first-mover disrupting force in cloud-based network security, J.P. Morgan says, initiating the stock at overweight.
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Zscaler  (ZS)  shares rose Monday after J.P. Morgan analyst Sterling Auty initiated coverage of the cloud-based network security platform with an overweight rating and a $190 share-price target.

The company’s shares recently traded at $148.89, up 1.3%. They have more than tripled year to date and have quadrupled off their 52-week low of $35, set in mid-March.

“One area that is early in its cloud migration is network security, and Zscaler is the first mover disrupting force in this journey,” Auty wrote in a commentary. 

“We see the potential for ZS to take significant share in what is a $20 billion+ market.”

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Importantly, “ZS offers leading technology and is backed by a highly effective management team. We believe that combination will lead to further share outperformance,” he said.

“The shift to the cloud has begun for security, and Zscaler is leading the way,” Auty sad. “Companies of all sizes are finding that in many different areas the cloud offers greater flexibility, innovation, and possibly cost savings.”

He said “that is now true for portions of the cybersecurity industry, and in particular network security, where ZS has led the way in replacing expensive [multiprotocol label switching] connections and on-premise remote access solutions with cloud-based offerings.”

In addition, “Zscaler is one of a small group of software companies that are still growing over 40% per year while generating north of $400 million of revenue and are profitable,” Auty said. 

“In fact, Zscaler is in the rule of 50 rather than rule of 40 segment, demonstrating that it is not just spending to generate the growth.”