Guidewire Software (GWRE:NYS) Fundamental Valuation Report

Fundamental Valuation Report

Guidewire Software(GWRE:NYS)


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Close Price/Date
$85.34 (USD) 28/01/2019

Weighted Valuation
$105.95 (USD)

Overall Rating
Undervalued by 24.2%

Valuation Models Analyst Consensus: $111.50 (USD)
(in order of importance) Adjusted Book Value: $105.42 (USD)
Multiples: $90.38 (USD)
Valuation Methods This company is:
Cash Flow: Overvalued on a Cash Flow Valuation
Comparable Company: Undervalued on a Comparable Valuation
Asset: Undervalued on an Asset Valuation

Company Overview (GWRE:NYS USD)

Price 85.34
Range 84.74 – 86.28
52 week 74.56 – 107.31
Open 85.20
Vol / Avg. 425298/554368
Mkt cap 6.92B
P/E 0.00
Div/yield 0.00/0.00
EPS -0.25
Shares 81.03M
Beta 1.33

Company Description

Guidewire Software Inc. is a vertical-specific application software vendor providing software product and subscription services to the property and casualty insurance industry. Guidewire InsuranceSuite is composed of Guidewire ClaimCenter, a claims management system; PolicyCenter, a system that digitizes processes around policy definitions, quotas, issuance, maintenance, and renewal; and BillingCenter, which manages billing, payment plans, and agent commissions. Guidewire’s InsuranceNow product is its cloud offering for smaller insurance clients. Guidewire add-on applications include underwriting management, rating management, and reinsurance management. Guidewire reports revenue in three segments: license, maintenance, and services.

Valuation Details

 We have up to 6 valuation points for each company. Details are at the bottom of the report.

Discounted Cash Flow and Sensitivity Analysis for GWRE:NYS

Using a discounted cash flow model we generated an intrinsic value of $23.71 (USD) for GWRE:NYS

Sensitivity Analysis

(showing how changes in the input variables impact the DCF calculation)

GWRE:NYS Current Values Valuation If Dropped * Valuation If Raised *
Calculated Value: $23.71 1% 5% 1% 5%
WACC (or Ke) 10.33 $27.53 $20.82
Terminal Growth Rate 3.00 $21.20 $27.02
Tax Rate 0.27 $25.19 $22.24
Cash Flow 200,335,000 $22.61 $24.82
Capital Expenditures -6,737,800 $23.68 $23.75
Long Term Debt 0 $23.71 $23.71

* Changes are absolute: ex WACC from 8% to 7%

Comparables Model

Using similar companies and price based ratios we generated a valuation of $101.97 (USD) for GWRE:NYS. We also generated a valuation of $113.72 (USD) using other metrics and comparables.
The comparable companies were Fair Isaac (FICO:NYS), j2 Global (JCOM:NAS), New Relic (NEWR:NYS), Q2 Holdings (QTWO:NYS) and Ultimate Software Group (ULTI:NAS).

Company GWRE:NYS End Date Value
Earnings/Share ($0.06) (USD)
Book Value/Share $18.36 (USD)
Sales/Share $9.22 (USD)
Cash Flow/Share $1.82 (USD)
EBITDA/Share $0.53 (USD)
Price Based on Comps Adjustment Factor (%)
$0.00 (USD) 0.0
$224.80 (USD) 8.1
$66.09 (USD) 0.0
$52.86 (USD) 0.0
$45.96 (USD) 0.0
0.00 PE Ratio 73.90 40.92 26.79 0.00 0.00 154.01
4.37 PB Ratio 12.24 20.53 3.27 14.51 13.43 9.47
8.70 PS Ratio 7.17 5.65 2.88 10.96 9.31 7.05
44.13 PCF Ratio 123.36 26.14 8.94 58.62 492.06 31.06
69.32 EV to EBITDA 86.81 24.40 10.06 250.72 0.00 62.06


Using a multiples approach we generated a valuation of  $90.38 (USD) for GWRE:NYS

Company GWRE:NYS End Date Value
Earnings/Share ($0.06) (USD)
Book Value/Share $18.36 (USD)
Sales/Share $9.22 (USD)
Cash Flow/Share $1.82 (USD)
EBITDA/Share $0.53 (USD)
Price Based on Comps Adjustment Factor
$0.00 (USD) 0
$104.45 (USD) 0
$98.06 (USD) 0
$90.39 (USD) 0
$68.64 (USD) 0
Ratios Ratio Average
PE Ratio 340.38
PB Ratio 5.69
PS Ratio 10.64
PCF Ratio 49.72
EV to EBITDA 129.66

Adjusted Book Value versus Historical Price to Book

The average the Price to Book ratio for  GWRE:NYS for the last 6 years was  5.71

We ran the Adjusted Book Value for  GWRE:NYS and generated a book value of  $18.46 (USD)
By multiplying these we get an adjusted valuation of  $105.42 (USD)

Analyst Data

In the Stockcalc database there are 2 analysts that provide a valuation for GWRE:NYS. The 2 analysts have a concensus valuation for GWRE:NYS for 2019 of $111.50 (USD).

GWRE:NYS Guidewire Software

Analyst Recommendation
Buy Hold Sell Rating
(of 5)
Guidance As Of
1 1 0 4.0000 Outperform 2019-1-25

Current Price: 85.34 USD

Analyst Consensus
USD Millions 2019 2020 2021
Mean EPS 1.22 1.49 1.82
# EPS Analysts 3 3 2
Mean Revenue 738.80 864.50 994.80
# Revenue Analysts 3 3 2
Mean Target Price 111.50
Mean Cash Flow 1.86 2.28 2.70
Mean EBITDA 72.50 108.50 194.50
Mean Net Income 105.80 126.00 157.30
Mean Debt Outstanding
Mean Tax Rate 20.50 21.00 21.00
Mean Growth Rate 19.95
Mean Capital Expenditure 9.40 11.00

Explanation of Valuation Models

We have up to 6 valuation points for each company in the database.

The Discounted Cash Flow (DCF) valuation is a cash flow model where cash flow projections are discounted back to the present to calculate value per share. DCF is a common valuation technique especially for companies undergoing irregular cash flows such as resource companies (mining, forestry, oil and gas) going though price cycles or smaller companies about to generate cash flow (junior exploration companies, junior pharma, technology firms…).

The Price Comparables valuation is the result of valuing the company we are looking at on the basis of ratios from selected comparable companies: Price to Earnings, Price to Book, Price to Sales, Price to Cash Flow, Enterprise Value (EV) to EBITDA. Each of these ratios for the selected comparable companies are averaged and multiplied by the values for the company we are interested in to calculate a value per share for our selected company.

We have included the Other Comparables as a way to value companies that cannot be valued using Earnings based ratios. This technique is very useful for companies still experiencing negative cash flows such as mining exploration firms. We use Cash/Share, Book Value/Share, MarketCap, 1 Year Return, NetPPE as the ratios here. Each of these ratios for the selected comparable companies are averaged and multiplied by the values for the company we are interested in to calculate a value per share for our selected company.

Multiples are similar to Price comparables where we look at current or historic ratios for the company in question to assess what it should be worth today based on those historic ratios. We use the same 5 ratios as in the price comparables and value the company with its historic averages.

With Adjusted Book Value (ABV) we calculate the book value per share for the company based on its balance sheet and multiply that book value per share by its historical price to book ratio to calculate a value per share.

If we have Analyst coverage for the company we use the consensus target price here.

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