Mizuho upgraded Zscaler (NASDAQ: ZS) to Outperform from Neutral and set a price target of $310, citing an improved risk-reward profile following a steep decline in the stock.

The analyst said Zscaler shares had weakened significantly despite the company reporting a solid fiscal first-quarter performance. The results, however, were accompanied by fiscal second-quarter net new ARR guidance that came in slightly below prior levels and did not include a specific contribution from the recently announced Red Canary acquisition. Mizuho reiterated its view that investors would benefit from greater transparency around Zscaler's organic growth outlook for the year.

Despite these concerns, the firm said it remained confident in Zscaler's strong positioning within the SASE and Zero Trust markets. With the stock down approximately 31% since the end of October and 21% since fiscal first-quarter earnings just three weeks earlier, Mizuho said investors were now being well compensated for the uncertainty. The analyst also noted that Zscaler was trading at a peak year-to-date EV-to-ARR discount relative to peers and highlighted the company's superior Rule of 50 score compared with many other high-growth software companies. Based on these factors, Mizuho upgraded the stock to Outperform.