Stock Analysis & Ideas

Duck Creek: Not Ducking Out of the Game Just Yet

Duck Creek Technologies, Inc. (NASDAQ: DCT) provides software as a service (SaaS) solutions for Property and Casualty insurance agencies, including distribution management, reinsurance management, and other services.

Last week, the company posted neat second-quarter fiscal 2022 results wherein both the top and bottom lines came above consensus estimates and even grew year-over-year. Nonetheless, a tepid outlook watered down the enthusiasm, causing investors to retreat, taking almost 14% of share value with them.

The stock hasn’t performed too well for the past few years, either. DCT has declined 37.37% so far this year, and 52.4% in the past three years.

Delayed closing of partnerships with large-tier carriers were a damper. These delays were due to macroeconomic factors including capacity constraints in organizations and System Integrators, and profitability shortfalls stemming from inflation.

Expert Brings Out the Upsides

Following the print, William Blair analyst Dylan Becker dug into Duck Creek’s developments and saw strong long-term potential based on management’s recent commentary on solid pipeline momentum and the company’s focus on “cloud-based core-system modernization initiatives.” Becker’s optimism comes despite obvious near-term headwinds to quarterly bookings “given the inherent nature of low-volume, high-value modernization projects.”

“…we remain believers in the company’s long-term positioning in the early-stage cloud opportunity, which should support sustainable subscription revenue growth and margin expansion opportunities for the next several years,” wrote Becker, justifying his Buy rating on the stock.

Moreover, in its annual Formation conference earlier this month, management at Duck Creek also highlighted the company’s relentless focus on employing a wide network of SI partners to bridge some of the potential capacity constraints.

In the same conference, several impending platform enhancements were mentioned, including a customized consumer portal which is expected to enhance policyholder experience. Further, the company is currently prioritizing ongoing active delivery over larger product releases. The active delivery will be released for Duck Creek’s policy solution by 2023.

Bottom Line

Taking into account these upsides, Duck Creek doesn’t look like it will stop growing as a sustainable business despite some slowdown in the near-term and dismal stock performance over the past three years.

Even Wall Street is optimistic about the company, with a Strong Buy consensus rating based on eight Buys and one Hold. The DCT stock price projection indicates an average price target of $26.44, reflecting a possible 12-month upside of 35.39%.

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