Intrinsic value of Guidewire Software, Inc. - GWRE

Previous Close

$97.81

  Intrinsic Value

$18.50

stock screener

  Rating & Target

str. sell

-81%

Previous close

$97.81

 
Intrinsic value

$18.50

 
Up/down potential

-81%

 
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 8.0

 

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, %
  3.30
  3.47
  3.62
  3.76
  3.88
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.68
  4.72
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
Revenue, $m
  683
  707
  732
  760
  789
  821
  854
  890
  928
  968
  1,011
  1,056
  1,104
  1,154
  1,208
  1,264
  1,323
  1,385
  1,451
  1,520
  1,593
  1,670
  1,751
  1,835
  1,925
  2,019
  2,117
  2,221
  2,330
  2,445
Variable operating expenses, $m
  647
  667
  690
  714
  740
  768
  798
  830
  863
  899
  893
  932
  975
  1,019
  1,066
  1,116
  1,168
  1,223
  1,281
  1,342
  1,407
  1,474
  1,546
  1,620
  1,699
  1,782
  1,869
  1,961
  2,057
  2,158
Fixed operating expenses, $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 operating expenses, $m
  647
  667
  690
  714
  740
  768
  798
  830
  863
  899
  893
  932
  975
  1,019
  1,066
  1,116
  1,168
  1,223
  1,281
  1,342
  1,407
  1,474
  1,546
  1,620
  1,699
  1,782
  1,869
  1,961
  2,057
  2,158
Operating income, $m
  36
  39
  42
  45
  49
  52
  56
  61
  65
  70
  118
  124
  129
  135
  141
  148
  155
  162
  170
  178
  187
  196
  205
  215
  225
  236
  248
  260
  273
  286
EBITDA, $m
  99
  103
  106
  110
  115
  119
  124
  129
  135
  141
  147
  154
  160
  168
  176
  184
  192
  201
  211
  221
  232
  243
  254
  267
  280
  293
  308
  323
  339
  355
Interest expense (income), $m
  0
  16
  17
  19
  20
  21
  22
  24
  25
  27
  29
  30
  32
  34
  36
  39
  41
  44
  46
  49
  52
  55
  59
  62
  66
  70
  74
  78
  82
  87
  92
Earnings before tax, $m
  20
  22
  24
  26
  28
  30
  33
  35
  38
  41
  88
  91
  95
  99
  103
  107
  111
  116
  121
  126
  131
  137
  143
  149
  156
  163
  170
  178
  186
  194
Tax expense, $m
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  39
  40
  42
  44
  46
  48
  50
  52
Net income, $m
  14
  16
  17
  19
  20
  22
  24
  26
  28
  30
  64
  67
  69
  72
  75
  78
  81
  85
  88
  92
  96
  100
  104
  109
  114
  119
  124
  130
  136
  142

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
  1,173
  1,214
  1,258
  1,305
  1,356
  1,410
  1,468
  1,529
  1,595
  1,664
  1,737
  1,815
  1,897
  1,983
  2,075
  2,171
  2,273
  2,380
  2,493
  2,612
  2,737
  2,869
  3,008
  3,154
  3,307
  3,468
  3,638
  3,816
  4,004
  4,201
Adjusted assets (=assets-cash), $m
  1,173
  1,214
  1,258
  1,305
  1,356
  1,410
  1,468
  1,529
  1,595
  1,664
  1,737
  1,815
  1,897
  1,983
  2,075
  2,171
  2,273
  2,380
  2,493
  2,612
  2,737
  2,869
  3,008
  3,154
  3,307
  3,468
  3,638
  3,816
  4,004
  4,201
Revenue / Adjusted assets
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
Average production assets, $m
  185
  191
  198
  206
  214
  222
  232
  241
  252
  262
  274
  286
  299
  313
  327
  342
  359
  375
  393
  412
  432
  453
  474
  497
  522
  547
  574
  602
  631
  663
Working capital, $m
  -72
  -75
  -78
  -81
  -84
  -87
  -91
  -94
  -98
  -103
  -107
  -112
  -117
  -122
  -128
  -134
  -140
  -147
  -154
  -161
  -169
  -177
  -186
  -195
  -204
  -214
  -224
  -235
  -247
  -259
Total debt, $m
  323
  343
  364
  387
  412
  438
  467
  497
  528
  562
  598
  636
  676
  718
  763
  810
  860
  912
  967
  1,025
  1,086
  1,150
  1,218
  1,289
  1,364
  1,443
  1,526
  1,613
  1,704
  1,800
Total liabilities, $m
  573
  592
  614
  637
  662
  688
  716
  746
  778
  812
  848
  886
  926
  968
  1,013
  1,060
  1,109
  1,162
  1,217
  1,275
  1,336
  1,400
  1,468
  1,539
  1,614
  1,693
  1,775
  1,862
  1,954
  2,050
Total equity, $m
  601
  622
  644
  668
  694
  722
  752
  783
  816
  852
  889
  929
  971
  1,016
  1,062
  1,112
  1,164
  1,219
  1,277
  1,337
  1,402
  1,469
  1,540
  1,615
  1,693
  1,776
  1,863
  1,954
  2,050
  2,151
Total liabilities and equity, $m
  1,174
  1,214
  1,258
  1,305
  1,356
  1,410
  1,468
  1,529
  1,594
  1,664
  1,737
  1,815
  1,897
  1,984
  2,075
  2,172
  2,273
  2,381
  2,494
  2,612
  2,738
  2,869
  3,008
  3,154
  3,307
  3,469
  3,638
  3,816
  4,004
  4,201
Debt-to-equity ratio
  0.540
  0.550
  0.570
  0.580
  0.590
  0.610
  0.620
  0.630
  0.650
  0.660
  0.670
  0.680
  0.700
  0.710
  0.720
  0.730
  0.740
  0.750
  0.760
  0.770
  0.770
  0.780
  0.790
  0.800
  0.810
  0.810
  0.820
  0.830
  0.830
  0.840
Adjusted equity ratio
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  14
  16
  17
  19
  20
  22
  24
  26
  28
  30
  64
  67
  69
  72
  75
  78
  81
  85
  88
  92
  96
  100
  104
  109
  114
  119
  124
  130
  136
  142
Depreciation, amort., depletion, $m
  63
  64
  64
  65
  66
  67
  68
  69
  70
  71
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
Funds from operations, $m
  77
  79
  82
  84
  86
  89
  92
  95
  98
  101
  93
  97
  100
  105
  109
  114
  119
  124
  129
  135
  141
  147
  154
  161
  168
  176
  184
  192
  201
  211
Change in working capital, $m
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
Cash from operations, $m
  80
  82
  84
  87
  89
  92
  95
  98
  102
  105
  97
  101
  106
  110
  115
  120
  125
  130
  136
  142
  148
  155
  162
  170
  178
  186
  194
  203
  213
  223
Maintenance CAPEX, $m
  -19
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
New CAPEX, $m
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
Cash from investing activities, $m
  -25
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -79
  -84
  -88
  -93
  -97
Free cash flow, $m
  55
  56
  57
  59
  60
  61
  63
  65
  66
  68
  58
  61
  63
  65
  68
  70
  73
  76
  79
  82
  86
  89
  93
  97
  102
  106
  111
  116
  121
  126
Issuance/(repayment) of debt, $m
  18
  20
  21
  23
  25
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  52
  55
  58
  61
  64
  68
  71
  75
  79
  83
  87
  91
  96
Issuance/(repurchase) of shares, $m
  4
  5
  5
  6
  6
  6
  6
  6
  6
  5
  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  
  22
  25
  26
  29
  31
  32
  34
  36
  38
  39
  36
  38
  40
  42
  45
  47
  50
  52
  55
  58
  61
  64
  68
  71
  75
  79
  83
  87
  91
  96
Total cash flow (excl. dividends), $m
  77
  81
  84
  87
  90
  94
  97
  100
  104
  107
  94
  98
  103
  107
  112
  117
  123
  128
  134
  140
  147
  154
  161
  168
  176
  185
  193
  203
  212
  222
Retained Cash Flow (-), $m
  -19
  -21
  -23
  -24
  -26
  -28
  -30
  -31
  -33
  -35
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -75
  -79
  -83
  -87
  -91
  -96
  -101
Prev. year cash balance distribution, $m
  842
  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
  900
  60
  62
  63
  64
  66
  67
  69
  70
  72
  57
  59
  61
  63
  65
  68
  71
  73
  76
  80
  83
  86
  90
  94
  98
  102
  107
  111
  116
  121
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
  863
  55
  54
  52
  50
  48
  45
  43
  40
  38
  27
  25
  23
  21
  19
  17
  15
  14
  12
  10
  9
  7
  6
  5
  4
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  99.9
  99.7
  99.6
  99.4
  99.3
  99.1
  99.0
  98.8
  98.7
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6

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, Inc. (GWRE)

Valuation Ratios
P/E Ratio 349.4
Price to Sales 14.3
Price to Book 8.2
Price to Tangible Book
Price to Cash Flow 53.6
Price to Free Cash Flow 56.4
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 $661 million for the last fiscal year's total revenue generated by Guidewire Software, Inc.. The default revenue input number comes from 0001 income statement of Guidewire Software, Inc.. 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 3.3% 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, Inc., 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, Inc..
    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 94.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 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, Inc..

Corporate tax rate of 27% is the nominal tax rate for Guidewire Software, Inc.. 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 27.1%.

Life of production assets of 9.6 years is the average useful life of capital assets used in Guidewire Software, Inc. 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 -10.6%. 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 - $1423.744 million for Guidewire Software, Inc. - 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 81.363 million for Guidewire Software, Inc. 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, Inc. at the current share price and the inputted number of shares is $8.0 billion.

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