Cloud security stock Zscaler (ZS) is set to release its Q4/20 results on 9 September after the market close.
Ahead of this key date, RBC Capital’s Matthew Hedberg has reiterated his ZS buy rating while ramping up his price target from $130 to $141, citing peer group multiple expansion.
“We expect Zscaler to deliver strong Q4/20 results on 9/9 with a focus on COVID tailwinds, ZIA run-rate, ZPA attach, continued execution and the balance of growth/leverage in the initial FY/21 guide” cheered the analyst.
He noted that investor sentiment has been positive following Q3/20 results on 5/28 as shares are +72% vs. security peers +14% and the S&P 500 +11%.
Specifically, Hedberg is expecting upside vs. consensus revenue/EPS at $118.6M/ $0.03 (+38% revenue growth) with revenue closer to $121.4M based on average revenue outperformance of $3.4M over the last four quarters.
“We’ll be looking for follow-through from Q3/20 results which reflected improved sales execution, accelerated security transformations that often precede digital transformations and look to gauge the sustainability of trends around work-from-home” the analyst commented.
Other important data points include guidance and TTM (trailing twelve month) net dollar retention. For FY/21 guidance vs. consensus revenue/EPS comes in at $556.1M/$0.28, or +31% vs. +40% for FY/20E.
Taking a step back from earnings, Hedberg believes Zscaler’s cloud security platform is well positioned to disrupt $20B of legacy security spend that could be more than $35B by 2024. (See ZS stock analysis on TipRanks)
“While mega- trends such as cloud adoption, digital transformation and zero-trust security are well-established, we believe COVID could accelerate these trends by up to five years, which could point to continued upside to estimates” the analyst told investors on September 7.
Shares in ZS have surged an incredible 188% year-to-date, and as a result analysts have a cautiously optimistic Moderate Buy consensus. ZS has received 7 recent buy ratings, offset by 4 hold ratings. Meanwhile the $145 average analyst price target indicates 8% upside potential lies ahead.
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