While quarterly results could be choppy, this wide-moat firm is becoming the industry standard for core operational sofware in the property and casualty insurance space.
By Rodney Nelson | 11-29-16 | 08:50 PM | Email Article

 Guidewire’s fiscal first-quarter results were ahead of our expectations, as management continues to set and exceed a high bar for performance. Fiscal 2017 will be a different year for Guidewire, as the company focuses its efforts on expanding its add-on services around predictive analytics and digital portals while simultaneously addressing broadening customer demands around functionality and delivery models. While these factors could create choppiness in quarterly results, we suggest investors focus on Guidewire’s continued march toward becoming the industry standard for core operational software in the property and casualty insurance space. We are maintaining our wide moat rating and $67 fair value estimate. Shares are hovering in shallow four-star territory following these results, and investors should take a closer look at the name on further weakness.

Rodney Nelson is a senior equity analyst for Morningstar.

First-quarter revenue rose 14% versus the prior-year period to $94 million, nearly 10% ahead of our estimate (which fell just above the midrange of management’s prior guidance). Most encouragingly, the outperformance primarily came from license revenue, which grew 20% year over year and is the best indicator of growth in the core business. Guidewire continues to benefit from a strengthening system integrator partner channel (including the addition of Accenture in EMEA earlier this year), which is helping to shift revenue away from lower-margin professional services. Still, Guidewire remains instrumental in working with customers to deliver a broader-based solution, evidenced by the company’s continued progress in its digital greenfield opportunity that is driving much of the firm’s incremental investment this year. This project (which spans the entire InsuranceSuite, includes multiple add-on services, and is being delivered in the cloud) remains on track to generate revenue by the end of the current fiscal year.

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