Guidewire's Cloud Transition Pays Off Early: Analyst Raises Price Target Amid Margin Gains

Stifel analyst J. Parker Lane reiterated a Buy rating on Guidewire Software, Inc. GWRE, raising the price target to $95 from $85.

GWRE reported better-than-expected fourth-quarter earnings but issued soft revenue guidance. 

Lane notes that the company beat across the board for 4Q, with margin gains from its cloud transition beginning to materialize earlier than expected, setting the company up to hit the high end of its FY25 margin targets.

Volatility in the after-markets ensued after missing top-line guidance, the analyst adds. The miss stems from headwinds across its license and services segments. 

Lane adds that subscription revenue guidance came in above expectations, which signals that the cloud story remains alive and well moving into FY24. 

Also Read: Guidewire Software Analysts Raise Their Forecasts After Upbeat Q4 Earnings

In the new fiscal year, the analyst sees significant momentum in cloud migrations within the customer base, net new cloud deployments and expansions, and margin expansion on the back of past investments. 

The analyst is remarkably upbeat about the P&C Insurance market's embracement of a cloud-based approach to core and operational systems.

Lane believes Guidewire's existing customer base provides a long runway for cloud migration, which should fuel long-term growth.

Under the leadership of CEO Mike Rosenbaum, Guidewire has made a stronger push into the cloud and should have ample opportunities for customer migration in the coming years. 

Following the upbeat Q4 results, the analyst raised FY24 EPS estimates from $0.90 to $0.97.

For FY25, Lane increased EPS estimates from $1.66 to $1.82.

Price Action: GWRE shares are trading higher by 10.66% to $93.88 on the last check Friday.