Fair Isaac Corporation

FICO Details

Fair Isaac Corporation (NYSE: FICO) provides analytical software and data management solutions and services that assist businesses in automating, enhancing, and connecting their decisions. It provides credit scoring and credit account management products and services to banks, credit reporting agencies, credit card processing companies, insurers, retailers, healthcare organizations, and other related industries. FICO's primary sources of revenue are perpetual software and scoring product and solution licensing, as well as associated maintenance, SaaS subscription services, consumer scoring and credit monitoring services, and professional services. As of November 12, 2021, the company’s market capitalization stood at USD 10.28 billion.

Latest News:

• Promoting Financial Awareness: On November 10, 2021, FICO and national and local charitable partners hosted a free online financial education event for Hampton Roads residents, including Norfolk, Virginia Beach, Chesapeake, Suffolk, Portsmouth, Newport News, and Hampton. The event is part of FICO's "Score A Better Future" initiative, which aims to assist people in better understanding their credit and financial health.

FY21 Results:

• Slight Increase in Topline: The company reported a meagre 1.70% increase in total revenue to USD 1.32 billion in FY21 (ended September 30, 2021) compared to USD 1.29 million in FY20.
• Surge in Net Income: Net income for FY21 increased 65.85% YoY and stood at USD 392.08 million compared to USD 236.41 million in FY20, owing primarily to a USD 92.8 million gain on the sale of its C&R business in June 2021.
• Cash and Debt Position: As of September 30, 2021, the company had cash & cash equivalents of USD 195.35 million and total debt of USD 1.26 billion.

Key Risks:

• Customer Concentration Risk: Revenues generated from its credit reporting agency (CRA) contracts with Experian, TransUnion, and Equifax represented 38% of FICO's total FY21 revenues. Such over-reliance on certain CRAs might be detrimental to the company's financial health in the long run.

Outlook:

FY22 Guidance (Source: Q4FY21 Earnings Release, November 10, 2021)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

FICO Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

FICO's share price has declined 23.36% in the past six months and is currently leaning towards the lower-band of the 52-week range of USD 370.52 to USD 553.97. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 35.83. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 484.84.

Considering the correction in the stock price in the past six months, strong profitability margins, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 375.67, down 0.57% as of November 12, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.   

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