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Guidewire Shows Momentum: Is It Part of Your Portfolio?

Zacks Equity Research

Shares of Guidewire Software, Inc. GWRE have been trending up, of late. Strong fundamentals and robust second-quarter results have aided the company find place in investors’ good books.

Notably, Guidewire stock gained 9.3% in the past year, against the industry’s decline of 3.7%.

Guidewire delivered second-quarter fiscal 2019 non-GAAP earnings of 34 cents per share, outpacing the Zacks Consensus Estimate of 19 cents. Notably, earnings also went up by 1 cent from the year-ago quarter. The figure also came ahead of management’s guided range of 17-21 cents per share.

The company reported revenues of $169.3 million, increasing 3% from the year-ago quarter. The figure comfortably surpassed the Zacks Consensus Estimate of $162 million and also came above the higher end of management’s guided range of $157-$161 million. The increase can primarily be attributed to growth in Services revenues and License revenues.

Further, strong adoption of several cloud-based products remained a key catalyst.

Product Adoption: Key Catalysts

The company was recently selected by Optimum General Inc. Notably, Guidewire InsurancePlatform Core products will help Optimum General in operating their residential lines of business.

During the last reported quarter, new and existing customers selected multiple components of Guidewire InsurancePlatform which included InsuranceSuite, digital, data and analytics.

Further, the company recently announced that South Africa-based insurer Santam will deploy its ClaimCenter offering across personal and commercial business domains. We believe that the rapid adoption of Guidewire’s solutions will aid the company to bolster subscription revenues, consequently enabling it to expand its total addressable market or TAM.

Moreover, management is extremely optimistic regarding several cloud-based products launched recently, at a time when the P&C insurance industry is moving steadily toward the adoption of cloud solutions.

Buyouts & Partnerships Aids Growth

Guidewire’s elaborate partnership programs and collaborations are major growth drivers. Its Partner Connect Program has been implemented worldwide, benefiting customers in the property and casualty insurance industry.

Notably, the company’s ongoing alliance with Verisk Analytics enabled it to offer robust Guidewire Product Content Management (“GPCM”) service. The move aids Guidewire to deliver robust services, benefiting the mutual customer base with digital methods, reducing time to market in cost-effective ways.

The company’s acquisition strategies are also a major contributor to growth. The buyouts of ISCS (now called InsuranceNow), FirstBest (now called Guidewire Underwriting Management) and EagleEye Analytics (now known as Guidewire Predictive Analytics) are not only aiding revenue growth but also helping the company to expand clientele.

Additionally, management is optimistic about the completion of the Cyence buyout. Notably, Cyence is a company that determines the economic impact of cybercrime via a software platform, which is built on cyber-security related data science. The integration of Cyence would enable Guidewire to provide an entire life cycle to the insurance products, starting from designing to transaction management.

Strong Growth Prospects

The company’s Zacks Consensus Estimate for fiscal 2019 earnings of $1.37 reflects year-over-year growth of 20.2%. Moreover, earnings are expected to register an improvement of 13.2% in fiscal 2020.

The stock has long-term expected earnings per share growth rate of 8%.

Notably, the company’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 191.4%.

Positive Estimate Revision

Earnings estimates for Guidewire have exhibited an uptrend, reflecting optimism in the stock’s prospects. The Zacks Consensus Estimate for the company’s current-year earnings has moved up 7 cents to $1.37 per share over the past 60 days.

These factors bolstered investors’ confidence in Guidewire stock.

Zacks Rank & Other Stocks to Consider

Guidewire carries a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks in the broader technology sector are Cadence Design Systems, Inc CDNS, Synopsys, Inc. SNPS and Symantec Corporation SYMC , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cadence Design, Synopsys and Symantec have a long-term earnings growth rate of 12%, 10% and 7.9%, respectively.

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Guidewire Software, Inc. (GWRE) : Free Stock Analysis Report
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