Guidewire Earnings: Strong Profitability, Good Demand Trends

We raise our fair value estimate to $102 per share from $98 for wide-moat Guidewire, after the firm reported strong fiscal third-quarter results that bested our expectations on both the top and bottom lines. We raise our near-term estimates based on more rapid improvements in operations and solid guidance, but we still see shares as overvalued. Management believes the demand environment is gaining momentum for the property and casualty insurance industry, but said that this vertical should not be conflated with enterprise software overall. Guidewire also made good progress with its shifting of implementation projects to system integration partners, which helps margins. Guidance for the year was raised by slightly more than the upside in the quarter, which we view as a bullish sign. We continue to see Guidewire as the primary winner as the P&C insurance industry continues to modernize and display durable momentum, with customers selecting the platform.