By Elsa Ohlen

Zscaler stock rose after it defied the current trend of weak performance in the cybersecurity sector, outperforming both analysts expectations and its own guidance in its third fiscal quarter.

The company is getting an "A+ Performance in a challenging cyber EPS quarter," according to Jefferies analyst Joseph Gallo.

Shares rose 4.9% to $263.35 in premarket trading Friday, adding to an already strong year in which the stock has risen about 40%.

The move contrasts starkly with investors' reaction to rival cybersecurity names, which have seen shares drop on disappointing results against a difficult macroeconomic backdrop.

On Thursday, SentinelOne stock plummeted double digits following its quarterly earnings report, as market uncertainty caused customer hesitation. Fortinet and Palo Alto Networks also dropped after their respective earnings earlier this month on similar concerns. CrowdStrike is due to report earnings on June 3.

Zscaler however, delivered strong revenue growth of 23% compared with the same period last year. "ZS became the first [off-quarter] cyber company to execute well through April," said Gallo as he reiterated a Buy-rating on shares and hiked his price target to $305 from $295.

"Strong top-line growth appears sustainable & will be supported by better sales efficiency & a broadening emerging portfolio," the analyst added.

For the quarter ended April 30, Zscaler reported adjusted earnings of 84 cents a share on revenue of $678 million, beating expectations of earnings of 76 cents a share on revenue of $667 million, according to analysts surveyed by FactSet.

An increasing number of customers are adopting Zscalers' Zero Trust Exchange platform, CEO Jay Chaudhry said in a statement. "The proliferation of AI in all aspects of business is increasing the need for our AI security."

Wall Street is overwhelmingly bullish on shares with more than two thirds rating the stock Buy or Buy-equivalent, according to FactSet. None rate is Sell.

A line of caution however comes from Evercore analyst Peter Levine who says that the Street's expectations for fiscal 2026 may be too optimistic. "A deeper dive into [management's] commentary, alongside a build-out of our initial [full-year 2026] assumptions vs. FactSet consensus leads us to believe estimates need to come down." Analysts polled by FactSet see full-year revenue of $2.66 billion.

Still, Levine has an Outperform rating on Zscaler and increased his target price to $290 from $245 following Thursday's earnings report.

Write to Elsa Ohlen at elsa.ohlen@barrons.com

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May 30, 2025 09:00 ET (13:00 GMT)

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