Guidewire Software, Inc.GWRE provides software products for property and casualty (P&C) insurers. Shares of this Zacks Rank #3 (Hold) stock have gained 43.2% in the past year, substantially outperforming the industry 's rally of 31.0%.
The momentum can be attributed to regular customer additions and positive acquisition synergies.
Let's delve deeper and find out why the stock is worth retaining.
Positive Earnings Surprise History
Guidewire has an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in the trailing four quarters, delivering a positive average earnings surprise of a whopping 203.86%.
Valuation Looks Impressive
On the valuation front too, the stock looks attractive. The company currently trades at a forward P/B multiple of 5.59x, significantly lower than the industry's average of 10.31x.
Northbound Revisions and Growth Projections
Over the last 30 days, fourth-quarter fiscal 2018 estimates were revised upward, resulting in the Zacks Consensus Estimate rising significantly from 60 cents to 74 cents per share. The figure reflects year-over-year growth of 25.42%.
For 2019, the Zacks Consensus Estimate for earnings per share is pegged at $1.33, translating to a year-over-year rise 31.55%.
Further, it has a long-term expected EPS growth rate of 8.00%.
Shift to Cloud-Based Model
Transition from the term license based model to subscription base is anticipated to be beneficial for Guidewire in the long run as majority of the enterprises are expected to lean toward cloud based infrastructure.
The company's cloud deployment partner, Amazon Web Services is also gaining momentum and this is a positive. According to Gartner, the global Software-as-a-Service (SaaS) market is expected to increase at a four-year CAGR of 18.4% over 2016-2020 time frame. It reinforces the company's growth prospects further.
However, in the near term, it may negatively impact the top line as license revenues include advance payments while subscription-based revenues are a bit delayed.
Guidewire's acquisition strategies significantly contribute to growth. 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 revenue growth but also aiding to expand clientele.
However, this move might expose the company to integration risks consequently, creating pressure on cash flow.
Guidewire reported stellar second-quarter results and raised fiscal 2018 guidance. The company's elaborate partnership programs, strong performance of subscription products and strategic collaborations remain major growth drivers. The company's Partner Connect Program has been implemented worldwide, benefiting its customers in the property and casualty insurance industry.
Recently, the company's services were selected by Atlas Financial, Mutual of Enumclaw Insurance and Mitsui Sumitomo Marine Management (U.S.A.). These new customer wins is going to bode well for Guidewire's top-line.
Stocks to Consider
Better-ranked stocks from the Business Software Services industry are Msci Inc MSCI , sporting a Zacks Rank #1 (Strong Buy) and Cognizant Technology Solutions Corporation CTSH , carrying a Zacks Rank #2 (Buy). In the broader technology sector, Nvidia Corporation NVDA sporting a Zacks Rank #1 is also worth considering. You can see the complete list of today's Zacks #1 Rank stocks here .
Msci, Cognizant and Nvidia have a long-term earnings growth rate of 10.00%, 12.60% and 10.25%, respectively.
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