Zscaler's stock has been a laggard this year. Why JPMorgan says it can rise 25%.

By Emily Bary

Zscaler shares head higher after JPMorgan analyst cheers the company's positioning in an upgrade

Zscaler Inc. shares are down 18% so far this year, and JPMorgan sees a buying opportunity in the cybersecurity name.

"We view current levels as an opportunity to own a leading Zero Trust vendor with favorable market exposure, well positioned to inflect to better growth in [the second half of 2025], currently trading at a discount to high growth peers and historical valuation levels," JPMorgan analyst Brian Essex wrote in a note to clients, as he lifted his rating on the stock to overweight from neutral.

Essex likes Zscaler's (ZS) positioning within the cybersecurity sector as it's well situated to what chief information officers see as worthwhile from a spending perspective. The company should "benefit from the migration of compute from on premise environments to cloud environments, as the global threat environment continues to accelerate," according to Essex.

See also: How Adobe quieted the doubters to send its stock cruising after earnings

He attributes the recent lagging performance of Zscaler shares to competitive concerns, execution issues in a tough economic climate and personnel changes within the sales team. However, Essex said that Zscaler's "fundamental performance remains strong," and his recent industry conversations painted a positive view of the company's stature.

Additionally, "recent sales executive turnover has been more the resultof the company proactively upgrading talent as opposed to losing talent to peers," in Essex's view.

Zscaler's 18% year-to-date decline has not only trailed the S&P 500's SPX 14% rise over that span, but it's also behind the 4% gain for the Amplify Cybersecurity ETF HACK. Essex's new $230 target price, up from $205 before, implies more than 25% upside from current levels.

"We believe the company's scale and architecture position it well to compete with emerging peers in what is now a $96 billion serviceable addressable market, execution remains strong with a growing pipeline and expectations are now at more reasonable levels," Essex wrote.

The stock is up 3% in Friday's premarket action.

-Emily Bary

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06-14-24 0902ET

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