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Reasons to Hold Guidewire (GWRE) in Your Portfolio for Now

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Guidewire Software GWRE has exhibited impressive price performance in the past year. Notably, shares of Guidewire have returned approximately 20.5% in a year, outperforming the industry’s growth of 4.1%. The stock has also outperformed the S&P 500 index’s rise of 5.3%.


We note that Guidewire delivered a positive earnings surprise of 73.9% in the trailing four quarters. Moreover, the company has a long-term expected EPS growth rate of 13.1%.

Let’s delve deeper and analyze the factors driving Guidewire’s robust performance.

Key Catalysts

Guidewire is benefiting from the adoption of its InsurancePlatform suite of products. Recently, notable insurance companies, including The Commonwell Mutual Insurance Group, Society Insurance, Gore Mutual Insurance Company, Groupe Macif (MACIF), Edina, Natixis Assurances and Amica Mutual Insurance, to mention a few, implemented the company’s subscription solutions.

We believe that the rapid adoption of Guidewire’s solutions will help it drive subscription revenues, enabling the expansion of its total addressable market or TAM.

Moreover, the company’s ClaimCenter solution is witnessing traction lately, which is a positive. We believe that the growing influence of the company’s cloud-based solutions will boost the company’s subscription revenues, going forward.

Guidewire’s partnership programs are an added positive. Notably, its PartnerConnect Program that has been implemented worldwide is benefiting customers in the property and casualty insurance industry.

Moreover, Guidewire recently announced that Shift Technology, Larsen & Toubro Infotech (or LTI) and Alchemy Technology Services are joining the Guidewire PartnerConnect alliance program.

An expanding partner base under the PartnerConnect program is expected to bolster the adoption of the company’s offerings and drive the top line.

The company’s initiatives to enhance offerings via product enhancements, inorganic strategies, and collaborations and partnership programs are enabling it to expand clientele.

Moreover, the company has increased investments to enhance insurance software products via collaborations with leading on-demand cloud infrastructure vendors, including Amazon’s AMZN cloud computing platform, Amazon Web Services (AWS), and Microsoft (MSFT - Free Report) Azure.

Further, Guidewire’s acquisition strategies aimed at strengthening InsurancePlatform are a key catalyst. The acquisition of ISCS (now called Insurance Now), FirstBest (now called Guidewire Underwriting Management) and EagleEye Analytics (now known as Guidewire Predictive Analytics) are not only bolstering revenues but also aiding clientele expansion.

Notably, the cross-selling of the product suites has expanded the customer base and accelerated revenue generation. Moreover, synergies from its latest Cyence buyout is expected to further expand Guidewire’s clientele.

Q4 Results

Guidewire reported fourth-quarter fiscal 2019 non-GAAP earnings of 56 cents per share, outpacing the Zacks Consensus Estimate of 50 cents. The figure also came ahead of management’s guidance of 47-53 cents per share.

The company reported revenues of $207.8 million, which surpassed the Zacks Consensus Estimate of $205 million. Further, the top line came slightly above the higher end of management’s guidance of $199-$207 million.

Management is confident regarding the strong adoption of its cloud-based products. Deployment of Guidewire’s ClaimCenter solution is a key catalyst. Moreover, the company added six InsuranceSuite Cloud customers, which is a positive.

Solid Growth Prospects

Guidewire has solid growth prospects, apparent from the Zacks Consensus Estimate for fiscal 2021 earnings per share of $1.51, indicating year-over-year growth of 28.9%.

Meanwhile, the company’s revenues are anticipated to increase 6.4% in fiscal 2020. Moreover, revenues are expected to rise 13% in fiscal 2021.

Risks Persist

However, increasing investments are likely to weigh on the bottom line, at least in the near term. Additionally, buyouts pose integration risks, which is a concern.

Zacks Rank and Key Picks

Guidewire carries a Zacks Rank #3 (Hold).

A better-ranked stock worth considering in the broader technology sector is Keysight Technologies Inc. KEYS, flaunting 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 Keysight is currently pegged at 10%.

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