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What's in the Offing for Guidewire (GWRE) in Q4 Earnings?

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Guidewire Software, Inc. (GWRE - Free Report) is slated to report fourth-quarter fiscal 2018 earnings on Sep 5. The company’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 195.5%. In the last reported quarter, the company delivered a positive earnings surprise of 600%.

Guidewire reported third-quarter fiscal 2018 non-GAAP earnings of 5 cents per share, comparing favorably with the Zacks Consensus Estimate of a loss of 1 cent per share. However, it was significantly lower than the year-ago figure of 16 cents per share.

The company delivered 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.

Guidance & Estimates

For fourth-quarter fiscal 2018, revenues are expected to be in the range of $234-$240 million. The Zacks Consensus estimate is pegged at $239.3 million.

Non-GAAP net income per share is anticipated to be between 72 cents and 77 cents. The Zacks Consensus estimate is pegged at 76 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 $651.7 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 $1.09 per share.

Factors to Consider

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 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.

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 while subscription-based revenues are a bit delayed.

Nevertheless, 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.

Guidewire Software, Inc. Price and EPS Surprise

 

Here is what the quantitative model predicts:

The chances of Guidewirebeating the Zacks Consensus Estimate are more this time as it has the right combination of two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for Eaton Vance is +0.50%.

Zacks Rank: Guidewirehas a Zacks Rank #3, which makes us reasonably confident of an earnings beat.

Other Stocks With a Favorable Combination

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

Workday, Inc. (WDAY - Free Report) has an Earnings ESP of +2.80% and a Zacks Rank #2 (Buy).

Oxford Industries, Inc. (OXM - Free Report) has an Earnings ESP of +0.41% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Marvell Technology Group Ltd. (MRVL - Free Report) has an Earnings ESP of +0.15% and a Zacks Rank #3.

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