Daily Stock Watch: Duck Creek Technologies (DCT) Earnings Preview

By Kirsteen Mackay

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Duck Creek Technologies (DCT) reports Q4 and full-year earnings after the market close today.

DCT stock

Duck Creek Technologies (NASDAQ: DCT) stock is down 64% year-to-date but is rising in pre-market trading. The company went public in August 2020 and coasted along until September 2021, when it began a steep decline. Today DCT has a $1.4bn market cap.

The company is due to report its quarterly and full fiscal year earnings on October 12 after the market close. FactSet analyst estimates provide an EPS consensus of $0.10 and a sales consensus of $295.27m for the Fiscal Year Ending August 2022.

What Does Duck Creek Technologies Do?

Duck Creek Technologies is the intelligent solutions provider defining the future of the property and casualty (P&C) and general insurance industry.

People buy insurance as financial protection against fire, flooding, hurricanes etc. When it comes to Property and Casualty (P&C), this insurance covers homes, contents, cars, boats, motorcycles, water skis and more.

Duck Creek has evolved from being a traditional software provider to offering cloud-based solutions, which include bi-weekly software updates.

Many modern insurance systems are built on the Duck Creek Technologies platform. It serves insurance providers and carriers, and Duck Creek is at the heart of generating insurance quotes, providing bills, and providing a claims system.

Indeed, Duck Creek Technologies enables the insurance industry to capitalize on the power of the cloud to run agile, intelligent, and evergreen operations.

Company products include Duck Creek policy, billing, claims, insights, ratings, distribution management, digital engagement, reinsurance management, and Duck Creek industry content.

Duck Creek Technologies was founded in 2000, is headquartered in Boston, Massachusetts and serves customers worldwide.

SBS Partnership

On October 10, Duck Creek Technologies announced a collaboration with SBS Insurance Services as one of its newest integration accelerators.

This partnership will allow Duck Creek customers a seamless digital journey. They'll be able to achieve a one-touch, same-day contents claim settlement via the Duck Creek Content Exchange integrated with SBS's Digital Household Contents Validation systems.

Shreyas Vasanthkumar, Duck Creek's Managing Director, Europe, the Middle East and Africa (EMEA), said:

We are thrilled to partner with SBS and expand further our footprint in the European market by offering SBS’ reliable content solutions to our customers, 

This partnership will help us meet the needs of our customers in a seamless and timely manner as the solution provides quick property replacement, which is a huge priority for insureds when they file a claim following an incident.

Sean Crowley, CEO of SBS, said:

SBS has been an innovator in the household contents market for over two decades, we are delighted to collaborate with Duck Creek – integrating P&C claims into one seamless claims journey, supported by award-winning technology and decades of expertise which SBS is synonymous with.

How Does Duck Creek Technologies Make Money?

Duck Creek Technologies makes money from:

  • Selling its hosted software services (SaaS) under subscription arrangements. 

  • Software license revenue is derived from selling perpetual and term license arrangements to customers.

  • Sales of maintenance and support services. These include telephone and web-based support, software updates, and rights to unspecified software upgrades on a when-and-if-available basis during the maintenance term.

  • Sales of professional services. These primarily relate to implementing the company's SaaS offerings and software licenses.

The majority of Duck Creek's revenues come from the United States.

DCT Stock Financials

DCT stock has a forward price-to-earnings ratio (P/E) of 87, which makes it look overvalued unless it can achieve impressive earnings growth. Its price-to-book-value (P/BV) is 1.98. DCT stock does not offer a shareholder dividend.

Over the past year, DCT stock has traded between $10.54 and $46.75. Today it trades at around $10.95. Year-to-date, the Duck Creek Technologies Inc stock price is down -64%, while the S&P 500 is down -25.18% over the same period.

FactSet analysts have a consensus Overweight rating on DCT stock with a target share price of $18.25.

Revenue Agreements with Investors

As of May 31, 2022, Accenture held 16% of the company's outstanding shares of common stock.

Duck Creek Technologies provides certain professional and software maintenance services to end customers as a subcontractor to Accenture as part of its typical revenue-generating arrangements.

The company also engages Accenture to provide professional services as part of its typical revenue-generating arrangements.

Duck Creek Technologies Growth Potential and Risks

Duck Creek's growth strategy focuses on developing its SaaS solutions and selling into new markets or penetrating existing ones. A part of Duck Creek Technologies' growth strategy is to bring AI into the mix. This should improve the user experience while improving search capabilities.

It also wants to broaden its scope of enterprise offerings to increase its customer footprint and overall value proposition.

Duck Creek currently serves a small percentage of the available market, so there is considerable potential for earnings growth. However, it faces competition, and many big insurers invest in digital engagement and streamlined systems.

The insurance business is complex, and regulations differ across 50 states. This complexity means the insurance industry has a high barrier to entry, making it difficult for newcomers to disrupt.

Meanwhile, insurance innovation is accelerating with the adoption of new technologies.

Duck Creek's competitors include Guidewire Software (NYSE: GWRE), Sapiens International Corporation (NASDAQ: SPNS), EIS Group, Insurity, Majesco, RGI and Prima Solutions.

Is DCT Stock a Good Investment?

Unfortunately, Duck Creek Technologies has a history of losses, making investors wary of the stock. But it has been increasing sales year-over-year for the past five years.

The company is trading on a price-to-sales multiple of 5, which is high, but in line with some SAAS businesses in the space. 

Investors will be looking for an earnings beat and promising signs of growth in today's earnings call.

If you enjoyed our Duck Creek Technologies coverage, you might be interested in our recent Daily Stock Watch articles or our IPO coverage.

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Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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