Zscaler (ZS) PT Lowered to $205 at JPMorgan
JPMorgan analyst Brian Essex lowered the price target on Zscaler (NASDAQ: ZS) to $205.00 (from $250.00) while maintaining a Overweight rating.
The analyst comments "Zscaler delivered solid 3Q results with strong Z-Flex momentum, but implied Q4 and early FY27 outlooks disappointed. ZS saw strong growth driven by Z- Flex momentum, sustained Zero Trust Everywhere expansion, public sector strength, and a rapidly scaling AI security portfolio. The stock traded lower after hours as the increase to FY26 guidance was less than the magnitude of the 3Q beat, and the (very) early FY27 growth outlook of 16-17% y/y for total ARR and revenue disappointed. Management noted that new logo performance was not a driver of the prudent FY27 outlook, and pointed instead to sales leadership transition (two senior sales leaders departed this quarter) and uncertainty in the pace of integrated SecOps traction. Zscaler indicated that the initial sub-consensus FY27 outlook is conservative, with room for upside as the sales leadership positions are filled and SecOps uptake gains visibility. CapEx is expected to step up in both FY26 and FY27 due to higher memory, storage, and processor costs tied to AI data center demand, yielding a lower FY26 FCF margin (high single digit capex as % of revenue now expected, vs. mid single digit previously). We’ve recently cited channel conversations that indicate an elevated level of C-suite concern (or urgency) around security risk after the emergence of Mythos, and Zscaler management indicated that the frontier model dynamic is one of the strongest tailwinds the business has ever seen. The company also noted that frontier models are driving urgent demand for ZS's ability to hide-applications and limit lateral movement. Management has not factored in meaningful 4Q contribution from this dynamic despite surging inbound demand. ZS also announced the acquisition of Symmetry Systems (expect minimal impact), which extends the Zero Trust Exchange to agent identity and data access mapping. ZS plans to detail the broader agentic opportunity across the platform (including the Symmetry integration) at Zenith Live next month. FY26 guidance revision and initial FY27 outlook were disappointing. However, with after-hours prices implying ZS stock trading at roughly 4.7x EV/Sales and 17.2x EV/FCF on our CY27 estimates, we view the setup into next year as meaningfully de-risked and remain Overweight rated as we adjust our outlook and price target to reflect results and commentary."