Zscaler Inc. (NASDAQ: ZS) shares climbed roughly 10% after B. Riley analyst Erik Suppiger moved his recommendation on the cybersecurity company from Neutral to Buy, while simultaneously lowering his price target to $225 from $275 to reflect reduced software valuation multiples observed in recent months.
The analyst pointed to several factors behind the upgrade, noting what he described as solid demand for secure network access and the prospect that wider adoption of AI technology could serve as a tailwind for Zscaler. Suppiger also cited the company’s expanding product portfolio and what he characterized as an attractive valuation as additional reasons for the change in stance.
"We are upgrading Zscaler because we believe demand for secure network access is healthy, and we believe the adoption of AI technology will provide a tailwind for Zscaler. We also believe the company benefits from an expanding product portfolio, and we view the company’s valuation as attractive. The company is a leader in the secure cloud access market with differentiated technology, and our industry contacts suggest the company has strong execution," the analyst commented.
B. Riley placed Zscaler’s enterprise value to next-twelve-months (NTM) revenue multiple at 6.8x, a level the firm says is materially below the company’s historical average multiple of 19x since its initial public offering. The revised $225 price target, the analyst explained, assumes Zscaler would trade at 45x calendar year 2027 earnings per share, which the firm notes is a discount to the average multiple for comparable companies despite Zscaler’s growth rate being in line with peers.
The combination of an upgraded rating and a lowered price target reflects B. Riley’s view that, while near-term valuation benchmarks for software names have compressed, the company’s demand profile, product expansion and potential benefits from AI adoption warrant a Buy recommendation under those new valuation conditions.
The market reaction was immediate: shares moved higher on the news following the analyst note, reflecting investor attention to the change in rating and to the firm’s updated valuation assumptions.
Summary - B. Riley upgraded Zscaler to Buy and trimmed its price target to $225 from $275, citing healthy demand for secure network access, potential AI-driven tailwinds, an expanding product portfolio, and an attractive valuation despite lower software multiples.