Investing.com -- Shares of Guidewire (NYSE: GWRE ) surged by 7% in early trading Thursday following the announcement that the company will replace Arrowhead Pharmaceuticals Inc. (NASDAQ: ARWR ) in the S&P MidCap 400 effective prior to the opening of trading on Monday, January 27. Adding to the positive sentiment, Goldman Sachs analysts initiated coverage on Guidewire with a Buy rating and a price target of $210.00.
The bullish stance from Goldman Sachs is grounded in Guidewire's leading position in the property and casualty (P&C) insurance industry's shift to cloud modernization. According to the analysts, a significant portion of direct written premium globally is still managed on outdated systems, and Guidewire is capturing the majority of core system decisions, with over 60% market share by DWP. The company's success in facilitating cloud transitions is notable, with approximately 40 cloud deals per year over the past three years.
Goldman Sachs analyst Adam Hotchkiss commented on the company's prospects, "Guidewire is at the forefront of an accelerating wave of cloud modernization in the P&C insurance industry, where we estimate the large majority of direct written premium (DWP) globally is still being managed on legacy or on-premise systems."
The analysts also highlighted the company's technological and cost advantages, which could increase pressure on competitors still relying on legacy mainframe systems. Despite acknowledging Guidewire's premium valuation, Goldman Sachs believes the company's clear growth trajectory, market share gains, and potential for strategic mergers and acquisitions justify the valuation. The firm anticipates a realistic near-term path to $5-6 in free cash flow per share.
Guidewire's inclusion in the S&P MidCap 400 and the optimistic outlook from Goldman Sachs have collectively contributed to the stock's ascent. Investors appear to be responding to the company's strong position in the market and the potential for continued growth as the insurance industry increasingly adopts cloud-based solutions.
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