Analyst: Now Is The Time To Get Bullish On Guidewire

Analysts at Piper Jaffray turned bullish on Guidewire Software Inc GWRE after taking some time to fully digest the company's fiscal third-quarter earnings report.

Piper Jaffray's Alex Zukin upgraded Guidewire's stock from Neutral to Overweight with a price target boosted from $70 to $75 as the earnings report showed the company remains a notable foundational technology vendor for the P&C insurance vertical space at a time when the industry is seeing "a full blown digital transformation."

In fact, P&C customers are now "thinking holistically" about their Digital and Analytics needs which creates higher cross-selling opportunities for the company, Zukin noted. Meanwhile, many potential customers are now debating and experimenting with cloud deployment models which also bodes well for the company.

The Numbers

Zukin's checks and observations suggest that only 40 to 50 percent of domestic tier 2 and 3 insurers have engaged in transformational initiatives, this number could soar to 80 percent by fiscal 2022. Naturally, this provides significant runway for Guidewire's recurring revenue growth profile.

Also, among the tier 4 and 5 level insurers, Guidewire faces a "tremendous pipeline" of opportunities which could add a "layer of consistency" to the typical seasonality of the company's business over the intermediate term.

Over the longer term, Guidewire could generate a $1 billion-plus revenue rate, show a mid-30 percent operating and free cash flow margins within five years given the $6 billion total addressable market.

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