What Happened:

Shares of insurance industry-focused software maker Guidewire (NYSE:GWRE) jumped 5% in the morning session after Stifel's analyst covering the stock upgraded the company's rating from Hold to Buy and raised the price target from $75 to $85, citing the successful transition to the cloud. The analyst surveyed P&C (Property & Casualty) insurers and found that Guidewire's cloud transition is gaining momentum, positioning the company for long-term growth in the P&C insurance space. The analyst expects improved margins and significant opportunities from cloud migrations.

What is the market telling us:

Guidewire Software's shares are somewhat volatile and over the last year have had 6 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was 26 days ago, when the stock dropped 5.24% on the news that the company reported third quarter results that missed analysts' revenue estimates. Cash burn increased and gross margin deteriorated compared to the previous quarter. However, earnings per share (EPS) beat. Moving ahead, revenue guidance for the next quarter was roughly in line, while full-year revenue guidance was below expectations. Profitability outlook was better as management raised the operating profit outlook. As a result, operating profit guidance came in ahead of expectations and this was attributed to higher cloud margins and ongoing cost discipline, which outweighed lower services revenue and margin. Overall, it was a mixed quarter, but the market seems more focused on the weak topline results and outlook than anything else.

Guidewire Software is up 17.5% since the beginning of the year, but at $73.97 per share it is still trading 10.9% below its 52-week high of $82.98 from May 2023. Investors who bought $1,000 worth of Guidewire Software's shares 5 years ago would now be looking at an investment worth $838.02.

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