Wells Fargo has maintained its Overweight rating on Fair Isaac Corporation (NYSE: NYSE:FICO), with the price target being increased to $2,200 from $2,100.
The firm anticipates significant benefits for the company from potential pricing strategies. The analyst from Wells Fargo noted that Fair Isaac could see an $200 million increase in revenue by fiscal year 2025, which would equate to an 11% rise in revenue and a 23% increase in earnings per share (EPS), should the company adjust its mortgage score price to $5.00.
Fair Isaac, known for its FICO scores, has a dominant position in the market with its credit scores being the primary measure in more than 95% of securitizations.
The firm has maintained stable pricing for nearly three decades, and since FICO scores represent a minor portion of consumer mortgage closing costs, Wells Fargo sees potential for the company to raise prices in the mortgage sector and other areas.
The financial institution has adjusted its forecasts for Fair Isaac's revenue growth in fiscal years 2025 and 2026 to 22% and 18%, respectively, up from the previous 17% and 16%. This adjustment is based on the assumption that Fair Isaac will increase its mortgage score price to $5.00 in calendar year 2025 and to $6.50 in 2026, along with additional pricing actions in the auto and credit card sectors.
Despite trading at a high multiple—66 times the projected 2025 earnings per share—Wells Fargo sees an opportunity for Fair Isaac to quadruple its EPS over the next five years. The new price target of $2,200 suggests a 13% upside potential.
This target is further supported by a discounted cash flow analysis, which projects an 18% compound annual growth rate (CAGR) in revenue and a 24% CAGR in EBITDA from 2023 to 2030.
In other recent news, Fair Isaac Corporation, also known as FICO, has reported a significant increase in its third-quarter revenue for 2024, with a rise of 12% to $448 million compared to the previous year. The GAAP net income showed a slight decrease of 2%, settling at $126 million, while non-GAAP net income rose by 9%, reaching $156 million. FICO also reported a record free cash flow of $206 million for the quarter, marking a 69% increase from the previous year.
The company's Scores segment saw a 20% revenue increase, driven mainly by B2B and mortgage originations, while the Software segment grew by 5%, propelled by SaaS software. FICO also announced a new authorization for share repurchases up to $1 billion.
In terms of future expectations, FICO is projecting a GAAP net income of $500 million, with earnings per share of $19.90, and a non-GAAP net income forecasted at $582 million, with earnings per share of $23.16. FICO has received an Outperform rating from Oppenheimer and a Neutral rating from UBS, indicating a balanced view of the company's prospects.
InvestingPro Insights
Fair Isaac Corporation's (NYSE:FICO) strong market position and potential for price increases, as highlighted by Wells Fargo, are further supported by recent financial data and insights from InvestingPro. The company's impressive gross profit margins, noted as an InvestingPro Tip, align with the reported 79.35% gross profit margin for the last twelve months as of Q3 2024. This robust profitability underscores FICO's pricing power in the credit scoring market.
The company's revenue growth of 12.28% over the same period, coupled with an EBITDA growth of 14.25%, reflects its continued expansion and efficiency improvements. These metrics support Wells Fargo's optimistic revenue growth projections for the coming years.
FICO's stock performance has been remarkable, with a one-year price total return of 123.77% and a six-month return of 54.94%. This aligns with the InvestingPro Tip highlighting the company's strong return over the last year and its trading near its 52-week high (currently at 99.02% of the high).
While FICO is trading at a high P/E ratio of 100.78 (adjusted for the last twelve months as of Q3 2024), which corresponds with the InvestingPro Tip about its high earnings multiple, the company's growth prospects and market dominance may justify this valuation. Investors should note that FICO operates with a moderate level of debt, providing financial flexibility for future growth initiatives.
For readers interested in a deeper analysis, InvestingPro offers 17 additional tips for FICO, providing a comprehensive view of the company's financial health and market position.
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