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Guidewire (GWRE) to Report Q3 Earnings: What's in the Cards?

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Guidewire Software, Inc. (GWRE - Free Report) is slated to report third-quarter fiscal 2018 earnings on Jun 5. The company’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 203.86%. In the last reported quarter, the company delivered a positive earnings surprise of 73.68%.

Guidewire reported second-quarter fiscal 2018 non-GAAP earnings of 33 cents per share, outpacing the Zacks Consensus Estimate of 19 cents per share. Further, the reported figure was much higher than the year-ago figure of 28 cents per share.

The company posted revenues of $163.8 million, which increased 42% from the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $154 million. The increase was primarily owing to growth in Services revenues and License revenues.

So, let’s see how things are shaping up prior to this announcement.

Factors to Consider

Partnerships & Acquisitions Drive Growth

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

Given its partnerships with the likes of Mitchell, Athenium and Enterprise holdings, the company’s insurance software applications are witnessing rapid adoption. More than 300 companies have opted for Guidewire’s products. Moreover, collaborations in Consulting, Insurance and cloud services areaiding revenue growth.

Guidewire’s buyout strategy is also a major contributor to its growth. The acquisitions 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 expand clientele.

Additionally, management is optimistic about the completion of the Cyence buyout. Notably, Cyence is a company that determines the economic impact of a 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.

Recently, the company’s services were selected by Atlas Financial, Mutual of Enumclaw Insurance and Mitsui Sumitomo Marine Management. These new customer wins is going to bode well for Guidewire’s top-line.

Shift to Cloud-Based Model

Notably, the company is transforming to a subscription based model from a term license based one, which might hurt the top line in the near term. This is because term license revenues include advance payments and subscription-based revenues are a bit delayed.

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

What the Zacks Model Unveils?

Our proven model does not conclusively show that Guidewire is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Guidewire currently carries a Zacks Rank #3, which increases the predictive power of ESP, but an ESP of 0.00% makes surprise prediction difficult.

The Zacks Consensus Estimate for the fiscal third quarter is pegged at a loss of 1 cent, reflecting a massive year-over-year decrease of 106.3%. However, analysts polled by Zacks anticipate revenues of $137.5 million, up 11.4% from the year-ago quarter.

Stocks With a Favorable Combination

Here are some companies you may want to consider as our model shows that these stocks have the right combination of elements to post an earnings beat:

Palo Alto Networks, Inc. (PANW - Free Report) has an Earnings ESP of +0.89% and a Zacks Rank #3.

Dave & Buster's Entertainment, Inc. (PLAY - Free Report) has an Earnings ESP of +0.72% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Restoration Hardware Holdings Inc. (RH - Free Report) has an Earnings ESP of +0.54% and a Zacks Rank #3.

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