Guidewire’s 10% Upside Is an Easy Target for Its Stock to Reach

Key Points

• Guidewire had a solid quarter, but guidance missed consensus. The takeaway is that analysts had expected worse, and the outlook is robust. 
• Guidewire is on track to double the expected industry growth in 2025 as insurers lean into its AI automation. 
• Analysts are raising their price targets and pointing to a 20% upside for this stock. 

You don’t normally think of technology and software as safe-haven plays for turbulent times, but that’s exactly what Guidewire NYSE: GWRE is. The company is a software company focused on the cloud, providing industry-leading services powered by AI to an all-weather industry perfectly positioned to benefit from it: insurance. The insurance industry is forecasted to grow at a high-single-digit CAGR through the decade's end. Guidewire will lead industry growth as insurers lean into the cloud, AI, and automation. 

Its cloud-based products include policy, billing, claims, management, self-management, ratings, reinsurance, and underwriting platforms for insurers. The company’s products resonate with users, leading to accelerated growth in 2024 and 2025. Critical takeaways from the FQ4 report and guidance include record revenue, 20% cash flow growth, a fortress balance sheet, rising equity, and consensus-beating guidance for F2025. 

Guidewire Grows, Outperformance, and Guides Higher for 2025

Guidewire had a solid quarter in Q4, with revenue growing 8% to $291.5 million. The growth outperformed the consensus estimate by 270 basis points on strength in the Subscription & Services segment, offset by expected declines in Licenses and Services. Subscription & Services grew by a robust 28%, driving record revenue for the business and widening the margin. Subscription & Services came in at 52% of the net for the quarter and is expected to continue gaining traction in 2025. 

Margin news is mixed with the net result, an increase in GAAP earnings, and a decrease in adjusted. However, the decline in adjusted earnings is due entirely to unavoidable taxes and does not reflect details such as the 70% increase in GAAP income, 20% increase in cash flow, or the balance sheet health. The salient point is that GAAP and adjusted earnings are well above the consensus, adjusted beat by 1400 basis points, and cash flow allows for debt reduction and improving equity, which grew by double-digits. 

The guidance is also mixed and reveals a market secretly fearing the worst. The company's guidance for Q1 and the full year are below the consensus estimate but offset by an expectation for YoY growth to accelerate sequentially from Q4 and last year in FQ1 and 2025 compared to 2024. Full-year revenue is expected to increase by 15% to double the industry forecast. 

Guidewire Builds Value for Shareholders: Analysts Lift Targets

Tepid or not, Guidewire’s guidance is solid and promises to continue the trends seen in 2024. Those include cash and investments rising by 36%, current and total assets rising double-digits, and increased current liabilities offset by decreased long-term debt. The net results are that total liabilities only increased by 6%, leaving equity by 12%. Regarding leverage, total liabilities, including the upcoming debt payment, are less than 1x cash, allowing ample financial flexibility. That means Guidewire can continue to invest in its growth and improving value and is in a position where significant capital return may enter the picture. 

Analysts liked what they saw in Guidewire’s report and are issuing positive revisions. MarketBeat tracked seven revisions on the first day following the release, including five increased price targets and two reaffirmed. All seven are above the consensus target, continuing a trend seen over the summer and leading to the $180 range or a 20% upside from $160. The broader consensus of targets issued over the last 12 months is below the current price action but is rising quickly, up 15% in the previous 30 days, providing support for the market. 

Guidewire Software: 12.5% Upside by End of Year

The price action of Guidewire Software was mixed following the release, but it is on track to hit $180 by the end of the year. The market surged by 20% and showed resistance at the new high, but the move aligns with trends and is supported by sell-side sentiment. Institutions buy this stock on balance in 2024 and own nearly 100%, so there is a significant tailwind. With that dynamic in place, the stock will unlikely fall much further from current levels; the now-broken high near $152 is a likely target for strong price support. The market may consolidate at or near the current levels with a chance of hitting $152 before extending the rally, but a continuation of the trend is expected before the year’s end.