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Wedbush Bullish On Zscaler After Q4 Report, Morgan Stanley Sticks To Sidelines

Cloud security company Zscaler, Inc. (NASDAQ: ZS) reported Wednesday afternoon with fourth-quarter results that were highlighted by 55% year-over-year billings growth.

· 09/10/2020 14:32

Cloud security company Zscaler, Inc. (NASDAQ:ZS) reported Wednesday afternoon with fourth-quarter results that were highlighted by 55% year-over-year billings growth.

Not all Street analysts are declaring the stock a longer-term winner.

The Zscaler Analysts: Wedbush analyst Daniel Ives maintains an Outperform rating on Zscaler's stock with a price target lifted from $150 to $160.

Morgan Stanley analyst Keith Weiss maintains an Equal-weight rating on Zscaler's stock with a price target lifted from $104 to $123.

Wedbush Says Zscaler's Q4 'Massive': Zscaler reported a "masterpiece quarter," as billings growth notably outperformed expectations as the company continues to fulfill enterprise needs for cybersecurity, Ives said in a note.

The "massive" report shows the company is in the "driver's seat on the cloud cyber security shift," the analyst said, adding that the momentum is sustainable.

"We continue to hear from CIOs/CISOs that there is an increasing need to secure applications, data, and consumers outside the firewall, speaking directly to the large TAM for ZS going forward and the massive market opportunity it has into the next few years," he said. 

Zscaler remains the best pure-play stock for exposure to cloud security, and the company is in the very early stages of industrywide growth in the coming years, according to Wedbush.

Morgan Stanley Asks: The End Or Just The Beginning? Zscaler's results could be a function of heavy investments and could start to slow or mark the beginning of sustainable growth, Weiss said in a note.

On one hand, 60% sales headcount growth throughout fiscal 2020 and an expanding solution portfolio helped pull forward demand as people require more secure work from home capabilities, the analyst said. 

On the other hand, the quarter could represent the beginning of a fundamental shift in security architectures toward cloud-based Zero Trust architectures, he said. 

Regardless of the debate, the stock is trading at 29 times EV/2021 sales, and this prices the stock as a Zero Trust winner, Weiss said. 

The shares are trading at a balanced risk-reward profile, according to Morgan Stanley. 

ZS Price Action: Zscaler shares were trading down 1.56% at $132.09 at last check Thursday.

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