Shares of Guidewire (GWRE) were on a bull run the first few trading hours after the software solutions provider released its fiscal fourth quarter (4QF21) results after the markets closed on September 2. But how long can this initial enthusiasm sustain?
Let’s first take a brief look into the company’s strong points. The robust adoption of the InsuranceSuite Cloud platform is driving the growth of its subscription-based offerings. Moreover, Guidewire is earnestly trying to enhance the Guidewire Cloud platform by frequently adding new capabilities like digital frameworks, automation, tooling, and other cloud services, a practice that is expected to keep the revenues coming from subscription-based solutions. (See Guidewire stock chart on TipRanks)
Investors were excited by the top- and bottom-line beats in the 4QF21. A record 17 core cloud deals were closed, including 16 for Insurance Suite. The decrease in license and services revenues, as well as contraction in margins, did not seem to bother investors, as they were better than expected.
However, company guidance for 1QF22 is majorly below expectations, especially margin and cash flows, which are likely to be kept under pressure by the ongoing cloud investments and model transition.
Incidentally, Property and Casualty (P&C) insurance carriers are transitioning away from traditional technology towards modern, cloud-based software solutions; a process that is going to take a while to complete. This is expected to hang heavily on margins and cash flows for some time.
Needham analysts, led by Mayank Tandon, observed a lack of positive catalysts to drive the top and bottom lines in the near term, due to the heavy weight of the prolonged model transition.
However, Tandon still believes Guidewire to be a great long-term investment because of its leadership in the P&C insurance software market. Moreover, subscription revenues are likely to remain robust as the demand grows for modern software in the P&C market, alleviating some of the near-term pressure looming on Guidewire. Based on these insights, he reinforced a Hold rating on the stock but refrained from attaching a price target.
Wall Street also reflects mixed sentiments around the prospects of Guidewire. Consensus rating for the company is a Moderate Buy, based on 4 Buys and 5 Holds. The average Guidewire price target of $137.43 indicates an upside potential of 11.7% from current levels.
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.
