What happened
Zoom Video Communications (ZM 1.57%) outgained the S&P 500 on Tuesday, which is saying something because the index closed a strong 2.1% higher. Zoom put up a 4.6% gain for the day, thanks in no small part to an analyst's upgrade.
So what
Benchmark analyst Matthew Harrigan has firmly planted himself among the Zoom bulls. On Monday morning, he lifted his recommendation on the stock from hold to buy, at a price target of $124 per share. That level implies a 25% upside to the stock's current price.
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In a new research note, Harrigan spoke of the "high regard" Benchmark has for the company's management, particularly CEO Eric Yuan. He also feels that Zoom has much potential it can exploit.
"Even in mid-[fiscal] 2022 the internal penetration for Rooms and Phone was single digits for Zoom Meetings customers," he wrote, referring to two core services offered by the specialty tech company. "There is also a large gap between the 30% or more of U.S. employees working remotely versus international, with Zoom now deploying more sales capacity overseas."
Harrigan pointed out that Zoom Phone's use in international markets is "especially nascent," and that overseas expansion should therefore be an excellent opportunity.
Now what
Zoom hasn't been a very popular stock of late because of two fundamental factors. First, in the U.S., the numbers of daily new COVID-19 cases and deaths have been declining steeply, a trend that is spurring employers to reopen their offices. Second, there has been a broad sell-off of tech stocks in recent months, and Zoom has been carried down with its category.
However, as Harrigan convincingly points out, Zoom still has plenty of potential it can take advantage of, especially considering that hybrid work and pure work-from-home situations are certainly going to stay with us to some extent. In that light, the analyst's new optimism seems fully justified.
