Guidewire Software: Wells Fargo maintains Overweight rating, raises PT to $275.

Guidewire Software: Wells Fargo maintains Overweight rating, raises PT to $275.

Wells Fargo has maintained its Overweight rating on Guidewire Software Inc (NYSE: GWRE) while raising its price target (PT) to $275, up from $220. The new PT reflects the company's strong performance and potential for growth, particularly in its cloud transition and data-driven analytics initiatives.

In its latest earnings report, Guidewire Software reported a significant milestone by surpassing the $1 billion annual recurring revenue (ARR) mark, with ARR growing 19% on a constant currency basis. The company's fully ramped ARR also grew by 22% year over year. Total revenue for the year reached $1.2 billion, exceeding expectations, with subscription revenue up 40% year over year.

Wells Fargo's analysts highlighted several positive aspects of Guidewire's performance. They noted the company's strong demand for its Guidewire Cloud platform, driven by a strategic 10-year partnership with Liberty Mutual. The cloud margins are improving ahead of schedule, with subscription and support gross margins finishing the year at 70%, up from 63% the previous year. The company is also investing in data-driven analytics and AI-focused applications, with the acquisition of Quantee to modernize pricing operations and product management across the industry.

However, Wells Fargo also acknowledged potential challenges. Despite strong cloud migration activity, license revenue only grew by 1% year over year, indicating potential challenges in transitioning all revenue streams to the cloud model. The company anticipates a decline in license revenue by over $30 million in fiscal 2026 due to continued progress on cloud migrations, which may impact overall revenue growth.

The analysts also noted that operating income was impacted by higher-than-expected employee bonus accruals due to outperformance of key financial targets, which could affect future profitability. Guidewire Software faces challenges in ensuring successful project implementations, as the possibility of failure and extended timelines remain concerns for potential customers.

Looking ahead, Wells Fargo expects Guidewire's ARR growth to continue, with a 17% growth expectation for fiscal 2026. The company's strategic position allows it to leverage generative AI to improve efficiencies in the insurance industry, with opportunities in pricing, underwriting, and claims.

References:
[1] https://finance.yahoo.com/news/guidewire-software-inc-gwre-q4-070438539.html
[2] https://www.tipranks.com/stocks/gwre/forecast