Zscaler stock is being hit despite a quarter that Wall Street is hailing as evidence of its strong business. The security-software company’s caution about its guidance looks to have disappointed the market but analysts aren’t too concerned.
Zscaler
shares were down 1.8% at $188.60 in early trading on Tuesday after its earnings update Monday. An increase to its full-year guidance wasn’t enough to lift the stock further after a 72% run up this year so far through to Monday’s close.
Analysts blamed the drop on disappointment over annual billings guidance being maintained at growth of between 24% and 26% despite Zscaler beating expectations for its first quarter and delivering billings growth of 34%.
“When looking past the noise, it’s evident that this quarter was well executed with most metrics outperforming, and our thesis remains firmly intact,” wrote Evercore analyst Peter Levine in a research note.
Levine kept an Outperform rating on the stock and raised his target price to $215 from $200 previously.
Other bulls were also unperturbed by the billings guidance, noting the company was showing caution around changes in its leadership, as it appointed new chief revenue and marketing officers.
“In the end, we believe ZS is simply leaving itself room following new sales and marketing hires, and we are not anticipating any meaningful disruption,” wrote Mizuho Securities analyst Gregg Moskowitz.
Moskowitz reiterated a Buy rating and $205 target price on the stock.
“Overall, we thought it was a good quarter, but we think much of this was already priced into the stock,” wrote RBC Capital Markets analyst Matthew Hedberg.
Hedberg pointed to the company’s artificial-intelligence enabled products as a future boost for its average selling prices and kept an Outperform rating and $220 target price on the stock.
Even for the more bearish Zscaler delivered a good quarter but expectations were high after the stock’s strong gains this year so far. Guggenheim Securities analyst John DiFucci kept a Neutral rating on the stock with no target price.
“The primary question is whether material moderation continues as implied in guidance, or not. We believe this is a unique asset with attractive growth and long-term financial characteristics,” DiFucci wrote.
Recent earnings misses by peers have tended to drag down the entire cybersecurity sector but performances were mixed in early trading on Tuesday with
Palo Alto Networks
up 1.6% in early trading and
CrowdStrike Holdings
down 1.0%.
Write to Adam Clark at [email protected]
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