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Guidewire Looks Bright Post Q3 Earnings: Should You Hold?

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A successful investor understands the importance of retaining well-performing stocks in the portfolio at the right time. Indicators of a stock's bullish run include a rise in share price and strong fundamentals. Though there may be some concerns regarding the stock but they are transitory in nature.

Guidewire Software, Inc. (GWRE - Free Report) is one such technology stock that has been on healthy growth trajectory, post third-quarter 2018 earnings. It has gained 33.8% year over year, substantially outperforming the 20.9% rally of the industry it belongs to.

Upbeat Q3 Results

Guidewire reported stellar third-quarter fiscal 2018 results and raised fiscal 2018 guidance. The company delivered third-quarter non-GAAP earnings of 5 cents per share, comparing favorably with the Zacks Consensus Estimate of a loss of 1 cent per share.

The company posted revenues of $140.5 million, which increased 14% from the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $137 million and was above the guided range. The increase can primarily be attributed to growth in Services revenues and Maintenance revenues.

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

Encouraging View

For fourth-quarter fiscal 2018, revenues are expected to be in the range of $234-$240 million. The Zacks Consensus estimate is pegged at $239.6 million.

Non-GAAP net income per share is anticipated to be between 72 cents and 77 cents. The Zacks Consensus estimate is pegged at 74 cents.

Guidewire raised fiscal 2018 guidance. The company now expects total revenues to be in the range of $647-$653 million (previously $644-$650 million band), representing an increase of 26- 27% year over year. The Zacks Consensus estimate is pegged at $648.9 million.

Non-GAAP net income is now projected to be between $1.05 cents and $1.11 per share (previously 98 cents and $1.04 cents per share). The Zacks Consensus estimate is pegged at $1.01 per share.

Positive Earnings Surprise History

Guidewire has an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in the trailing four quarters, recording a positive average earnings surprise of 195.5%.

Further, it has a long-term expected EPS growth rate of 8%.

Other Positives

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

The company’s acquisition strategies are also a major contributor to its growth. The buyout 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 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.

Zacks Rank and Key Picks

Guidewire carries a Zacks Rank #3 (Hold).

Amazon.com, Inc. (AMZN - Free Report) , NVIDIA Corporation (NVDA - Free Report) and Citrix Systems, Inc. (CTXS - Free Report) are stocks worth considering in the broader technology sector. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Amazon, NVIDIA and Citrix Systems is currently pegged at 30.2%, 10.3% and 9.1%, respectively.

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