Goldman Sachs cuts Guidewire stock target to $235, maintains Buy

On Friday, Goldman Sachs analyst Adam Hotchkiss adjusted the price target for Guidewire shares (NYSE: GWRE), reducing it to $235 from the previous target of $240, while reaffirming a Buy rating for the stock. The revision followed Guidewire’s second fiscal quarter report, which surpassed expectations in annual recurring revenue (ARR), revenue, operating income, and free cash flow (FCF). The company’s strong performance is reflected in its impressive 60% return over the past year, according to InvestingPro data. Additionally, the company has increased its fiscal year 2025 guidance across various metrics.

Guidewire’s second fiscal quarter was notable for securing twelve cloud deals and six cloud migrations, exceeding the figures from the same quarter in the previous year. The company also closed four full InsuranceSuite deals, one of which was a significant competitive win. These achievements underscore the trend of insurers increasingly adopting multiple applications from Guidewire’s core suite, which includes Policy, Billing, and Claims. InvestingPro data shows the company maintains a healthy financial position with a current ratio of 2.66 and operates with moderate debt levels, supporting its expansion strategy.

Despite the third-quarter ARR guidance being slightly below consensus, with projections ranging from $942 million to $947 million against a consensus of approximately $948 million, Goldman Sachs does not view this as a sign of underlying issues in Guidewire’s business. The firm anticipates that the visible ARR backlog increase and a strong renewal pipeline will mitigate any risks associated with the raised guidance for fiscal year ARR.

Goldman Sachs’ outlook on Guidewire remains positive, citing the company’s potential for long-term market share gains and the near-term benefits from the rate of cloud migrations, which this quarter were bolstered by the momentum of full InsuranceSuite deals. The analyst believes that these factors, along with a clear near-term path to achieving $6 in FCF per share, justify a premium growth-relative multiple for Guidewire’s shares. The new 12-month price target reflects this confidence in the company’s growth prospects.

In other recent news, Guidewire Software Inc (NYSE:GWRE). reported its second-quarter fiscal 2025 financial results, revealing a 20% increase in total revenue to $289 million, surpassing expectations. The company also reported a 15% year-over-year growth in Annual Recurring Revenue (ARR), reaching $918.1 million, exceeding the consensus estimate of $911.8 million. This performance was highlighted by strong subscription and support revenue, which grew by 35% to $178 million, and robust profit margins, with a non-GAAP gross margin of 65.2%.

Following these results, Citizens JMP analyst Joe Goodwin raised the price target for Guidewire shares to $250, maintaining a Market Outperform rating, while Citi analyst Tyler Radke increased the target to $199, keeping a Neutral stance. Guidewire’s earnings per share (EPS) came in slightly below forecasts at $0.51 against an expected $0.52, but the revenue beat was positively received by the market. The company closed 12 new cloud deals, expanding its customer base with significant sales in Europe.

Guidewire has raised its ARR outlook to between $1,000 million and $1,010 million, reflecting a 16-17% year-over-year growth, while also projecting total revenue for the fiscal year to be between $1.164 billion and $1.174 billion. The company anticipates continued momentum in cloud migrations and is exploring generative AI applications to enhance its offerings. Despite the positive results, concerns were noted about the valuation and profitability metrics compared to industry peers.

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