Intrinsic value of Guidewire Software - GWRE

Previous Close

$84.44

  Intrinsic Value

$13.59

stock screener

  Rating & Target

str. sell

-84%

Previous close

$84.44

 
Intrinsic value

$13.59

 
Up/down potential

-84%

 
Rating

str. sell

We calculate the intrinsic value of GWRE stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 6.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  13.80
  12.92
  12.13
  11.42
  10.77
  10.20
  9.68
  9.21
  8.79
  8.41
  8.07
  7.76
  7.49
  7.24
  7.01
  6.81
  6.63
  6.47
  6.32
  6.19
  6.07
  5.96
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
Revenue, $m
  585
  661
  741
  826
  915
  1,008
  1,105
  1,207
  1,313
  1,424
  1,539
  1,658
  1,782
  1,911
  2,045
  2,184
  2,329
  2,480
  2,637
  2,800
  2,970
  3,147
  3,331
  3,524
  3,725
  3,935
  4,154
  4,383
  4,622
  4,872
Variable operating expenses, $m
  517
  581
  649
  721
  796
  875
  958
  1,044
  1,134
  1,228
  1,304
  1,405
  1,510
  1,620
  1,733
  1,851
  1,974
  2,102
  2,235
  2,373
  2,517
  2,667
  2,823
  2,987
  3,157
  3,335
  3,520
  3,714
  3,917
  4,129
Fixed operating expenses, $m
  32
  32
  33
  34
  35
  35
  36
  37
  38
  39
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
  49
  50
  51
  52
  53
  55
  56
  57
  58
  60
Total operating expenses, $m
  549
  613
  682
  755
  831
  910
  994
  1,081
  1,172
  1,267
  1,343
  1,445
  1,551
  1,662
  1,776
  1,895
  2,019
  2,148
  2,282
  2,421
  2,566
  2,717
  2,874
  3,039
  3,210
  3,390
  3,576
  3,771
  3,975
  4,189
Operating income, $m
  36
  47
  59
  71
  84
  97
  111
  126
  141
  157
  195
  212
  231
  249
  269
  289
  310
  332
  355
  379
  404
  430
  457
  485
  514
  545
  577
  611
  646
  683
EBITDA, $m
  69
  82
  95
  109
  123
  138
  155
  171
  189
  207
  226
  246
  266
  288
  310
  333
  357
  382
  408
  435
  463
  493
  523
  555
  589
  624
  661
  699
  739
  781
Interest expense (income), $m
  0
  0
  1
  3
  4
  6
  8
  10
  12
  13
  16
  18
  20
  22
  25
  27
  30
  33
  35
  38
  41
  45
  48
  51
  55
  59
  63
  67
  71
  75
  80
Earnings before tax, $m
  36
  46
  56
  66
  77
  89
  101
  114
  128
  142
  177
  193
  208
  225
  242
  259
  278
  297
  317
  338
  359
  382
  405
  430
  456
  483
  511
  540
  571
  603
Tax expense, $m
  10
  12
  15
  18
  21
  24
  27
  31
  34
  38
  48
  52
  56
  61
  65
  70
  75
  80
  86
  91
  97
  103
  109
  116
  123
  130
  138
  146
  154
  163
Net income, $m
  26
  33
  41
  48
  57
  65
  74
  83
  93
  103
  130
  141
  152
  164
  176
  189
  203
  217
  231
  246
  262
  279
  296
  314
  333
  352
  373
  394
  417
  440

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  762
  861
  965
  1,075
  1,191
  1,312
  1,439
  1,572
  1,710
  1,854
  2,003
  2,159
  2,320
  2,488
  2,663
  2,844
  3,033
  3,229
  3,433
  3,645
  3,867
  4,097
  4,338
  4,588
  4,850
  5,123
  5,408
  5,706
  6,018
  6,344
Adjusted assets (=assets-cash), $m
  762
  861
  965
  1,075
  1,191
  1,312
  1,439
  1,572
  1,710
  1,854
  2,003
  2,159
  2,320
  2,488
  2,663
  2,844
  3,033
  3,229
  3,433
  3,645
  3,867
  4,097
  4,338
  4,588
  4,850
  5,123
  5,408
  5,706
  6,018
  6,344
Revenue / Adjusted assets
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
  0.768
Average production assets, $m
  89
  100
  113
  125
  139
  153
  168
  183
  200
  216
  234
  252
  271
  290
  311
  332
  354
  377
  401
  426
  451
  478
  506
  536
  566
  598
  631
  666
  703
  741
Working capital, $m
  -66
  -74
  -83
  -92
  -102
  -113
  -124
  -135
  -147
  -159
  -172
  -186
  -200
  -214
  -229
  -245
  -261
  -278
  -295
  -314
  -333
  -352
  -373
  -395
  -417
  -441
  -465
  -491
  -518
  -546
Total debt, $m
  25
  53
  82
  112
  144
  178
  213
  250
  288
  328
  369
  412
  457
  504
  552
  602
  654
  709
  765
  824
  885
  949
  1,016
  1,085
  1,158
  1,233
  1,312
  1,395
  1,481
  1,572
Total liabilities, $m
  211
  238
  267
  298
  330
  363
  399
  435
  474
  513
  555
  598
  643
  689
  738
  788
  840
  894
  951
  1,010
  1,071
  1,135
  1,202
  1,271
  1,343
  1,419
  1,498
  1,581
  1,667
  1,757
Total equity, $m
  551
  622
  698
  777
  861
  949
  1,041
  1,136
  1,236
  1,340
  1,448
  1,561
  1,678
  1,799
  1,925
  2,056
  2,193
  2,334
  2,482
  2,636
  2,796
  2,962
  3,136
  3,317
  3,507
  3,704
  3,910
  4,126
  4,351
  4,587
Total liabilities and equity, $m
  762
  860
  965
  1,075
  1,191
  1,312
  1,440
  1,571
  1,710
  1,853
  2,003
  2,159
  2,321
  2,488
  2,663
  2,844
  3,033
  3,228
  3,433
  3,646
  3,867
  4,097
  4,338
  4,588
  4,850
  5,123
  5,408
  5,707
  6,018
  6,344
Debt-to-equity ratio
  0.050
  0.080
  0.120
  0.140
  0.170
  0.190
  0.200
  0.220
  0.230
  0.240
  0.250
  0.260
  0.270
  0.280
  0.290
  0.290
  0.300
  0.300
  0.310
  0.310
  0.320
  0.320
  0.320
  0.330
  0.330
  0.330
  0.340
  0.340
  0.340
  0.340
Adjusted equity ratio
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  26
  33
  41
  48
  57
  65
  74
  83
  93
  103
  130
  141
  152
  164
  176
  189
  203
  217
  231
  246
  262
  279
  296
  314
  333
  352
  373
  394
  417
  440
Depreciation, amort., depletion, $m
  33
  35
  36
  38
  40
  41
  43
  45
  48
  50
  31
  33
  36
  38
  41
  44
  47
  50
  53
  56
  59
  63
  67
  70
  74
  79
  83
  88
  92
  97
Funds from operations, $m
  59
  68
  77
  86
  96
  107
  118
  129
  141
  153
  160
  174
  188
  202
  217
  233
  249
  266
  284
  302
  322
  342
  363
  384
  407
  431
  456
  482
  509
  538
Change in working capital, $m
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -23
  -25
  -26
  -27
  -28
Cash from operations, $m
  67
  76
  86
  96
  106
  117
  128
  140
  153
  166
  173
  187
  202
  217
  232
  249
  266
  283
  302
  321
  341
  362
  383
  406
  430
  455
  481
  508
  536
  566
Maintenance CAPEX, $m
  -10
  -12
  -13
  -15
  -17
  -18
  -20
  -22
  -24
  -26
  -28
  -31
  -33
  -36
  -38
  -41
  -44
  -47
  -50
  -53
  -56
  -59
  -63
  -67
  -70
  -74
  -79
  -83
  -88
  -92
New CAPEX, $m
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -36
  -38
Cash from investing activities, $m
  -21
  -23
  -25
  -28
  -31
  -32
  -35
  -37
  -40
  -43
  -45
  -49
  -52
  -56
  -58
  -62
  -66
  -70
  -74
  -78
  -82
  -86
  -91
  -96
  -101
  -106
  -112
  -118
  -124
  -130
Free cash flow, $m
  46
  53
  60
  68
  76
  85
  93
  103
  112
  122
  127
  138
  150
  161
  174
  186
  200
  214
  228
  243
  259
  275
  292
  310
  329
  348
  369
  390
  412
  435
Issuance/(repayment) of debt, $m
  25
  27
  29
  31
  32
  34
  35
  37
  38
  40
  41
  43
  45
  47
  48
  50
  52
  54
  57
  59
  61
  64
  67
  69
  72
  76
  79
  83
  86
  90
Issuance/(repurchase) of shares, $m
  41
  38
  35
  31
  27
  23
  18
  12
  7
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  66
  65
  64
  62
  59
  57
  53
  49
  45
  41
  41
  43
  45
  47
  48
  50
  52
  54
  57
  59
  61
  64
  67
  69
  72
  76
  79
  83
  86
  90
Total cash flow (excl. dividends), $m
  112
  118
  124
  130
  135
  141
  146
  152
  157
  163
  169
  181
  194
  208
  222
  237
  252
  268
  285
  302
  320
  339
  359
  380
  401
  424
  448
  472
  498
  526
Retained Cash Flow (-), $m
  -67
  -71
  -75
  -80
  -84
  -88
  -92
  -96
  -100
  -104
  -108
  -112
  -117
  -121
  -126
  -131
  -136
  -142
  -148
  -154
  -160
  -167
  -174
  -181
  -189
  -197
  -206
  -216
  -225
  -236
Prev. year cash balance distribution, $m
  410
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  455
  47
  49
  50
  52
  53
  55
  56
  57
  59
  61
  69
  77
  86
  96
  106
  116
  126
  137
  148
  160
  172
  185
  198
  212
  226
  241
  257
  273
  290
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  436
  43
  42
  41
  40
  39
  37
  35
  33
  31
  29
  29
  29
  29
  28
  27
  25
  23
  21
  19
  17
  14
  12
  10
  8
  7
  5
  4
  3
  2
Current shareholders' claim on cash, %
  98.9
  98.0
  97.3
  96.7
  96.3
  95.9
  95.7
  95.6
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5
  95.5

Guidewire Software, Inc. is a provider of software products for property and casualty (P&C) insurers. The Company's software serves as a technology platform for P&C insurance carriers. The Company's InsurancePlatform consists of three elements: core transaction processing, data management and analytics, and digital engagement. The Company sells its products to a range of global P&C insurance carriers ranging from global insurers to national carriers to regional carriers. The Company's core transaction processing includes Guidewire InsuranceSuite, Guidewire PolicyCenter, Guidewire ClaimCenter, Guidewire BillingCenter and InsuranceSuite Add-on Modules. The Company's data management and analytics includes Guidewire DataHub, Guidewire InfoCenter, Guidewire Live and Guidewire Predictive Analytics. The Company's digital engagement includes Guidewire Digital Portals.

FINANCIAL RATIOS  of  Guidewire Software (GWRE)

Valuation Ratios
P/E Ratio 301.6
Price to Sales 12.3
Price to Book 7.1
Price to Tangible Book
Price to Cash Flow 46.2
Price to Free Cash Flow 48.7
Growth Rates
Sales Growth Rate 21.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 7%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.1%
Ret/ On Assets - 3 Yr. Avg. 1.7%
Return On Total Capital 2.5%
Ret/ On T. Cap. - 3 Yr. Avg. 2%
Return On Equity 2.5%
Return On Equity - 3 Yr. Avg. 2%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 62.8%
Gross Margin - 3 Yr. Avg. 62.8%
EBITDA Margin 10.1%
EBITDA Margin - 3 Yr. Avg. 7.8%
Operating Margin 5.1%
Oper. Margin - 3 Yr. Avg. 4.4%
Pre-Tax Margin 6.4%
Pre-Tax Margin - 3 Yr. Avg. 5.3%
Net Profit Margin 4.1%
Net Profit Margin - 3 Yr. Avg. 3.4%
Effective Tax Rate 36.4%
Eff/ Tax Rate - 3 Yr. Avg. 35.4%
Payout Ratio 0%

GWRE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GWRE stock intrinsic value calculation we used $514.284 million for the last fiscal year's total revenue generated by Guidewire Software. The default revenue input number comes from 0001 income statement of Guidewire Software. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our GWRE stock valuation model: a) initial revenue growth rate of 13.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for GWRE is calculated based on our internal credit rating of Guidewire Software, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Guidewire Software.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of GWRE stock the variable cost ratio is equal to 88.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $31 million in the base year in the intrinsic value calculation for GWRE stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Guidewire Software.

Corporate tax rate of 27% is the nominal tax rate for Guidewire Software. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the GWRE stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for GWRE are equal to 15.2%.

Life of production assets of 7.6 years is the average useful life of capital assets used in Guidewire Software operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for GWRE is equal to -11.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $893.281 million for Guidewire Software - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 80.264 million for Guidewire Software is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Guidewire Software at the current share price and the inputted number of shares is $6.8 billion.

RELATED COMPANIES Price Int.Val. Rating
SPNS Sapiens Intern 10.95 24.17  str.buy
MJCO Majesco 7.72 2.53  str.sell
PEGA Pegasystems 51.48 2.68  str.sell
EBIX Ebix 50.15 229.30  str.buy
SAP SAP ADR 103.83 4,712.61  str.buy

COMPANY NEWS

▶ Analysts think these Bay Area deals could follow Red Hat's $34 billion sale to IBM   [Oct-30-18 05:24PM  American City Business Journals]
▶ Guidewire Software: A Technical Guide for the Stock   [Oct-08-18 11:40AM  TheStreet.com]
▶ Germania Insurance Deploys Guidewire InsurancePlatform   [Sep-26-18 08:55AM  Business Wire]
▶ Stocks Relieved as Tariffs Could've Been Worse   [Sep-19-18 09:15AM  Zacks]
▶ Guidewire Software to Present at Deutsche Bank Conference   [Sep-06-18 04:15PM  Business Wire]
▶ Guidewire Software: Fiscal 4Q Earnings Snapshot   [Sep-05-18 05:18PM  Associated Press]
▶ Saga Deploys Guidewire Core, Data, and Digital Products   [Jun-26-18 05:00AM  Business Wire]
▶ 3 More Fintech Stocks to Put On Your Wish List   [Jun-19-18 03:01PM  InvestorPlace]
▶ Guidewire InsurancePlatform Aligned to Insurer Success   [Jun-08-18 05:00AM  Business Wire]
▶ Wired News - Microsoft Acquires GitHub   [07:20AM  ACCESSWIRE]
▶ Guidewire Software: Fiscal 3Q Earnings Snapshot   [04:33PM  Associated Press]
▶ Guidewire Software to Present at J.P. Morgan Conference   [May-09-18 04:15PM  Business Wire]
▶ What's working: Market volatility   [08:17AM  CNBC Videos]
▶ Guidewire Wins Two XCelent Awards for Policy Administration   [Apr-03-18 08:55AM  Business Wire]

CONTACT US       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2018. All rigths reserved.