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Regulatory risks looming over Fair Isaac are overblown, according to Baird. The investment firm upgraded the credit scoring firm to outperform from neutral. Analyst Jeffrey Meuler did lower his price target to $1,900 from $2,021, but that still points to 26% upside. Shares of Fair Isaac have tumbled 24% this year, as the company faces pressure from Federal Housing Finance Agency director Bill Pulte, who has expressed disappointment over the company’s rising costs to pull credit reports. FICO YTD mountain FICO YTD chart That said, Meuler thinks Fair Isaac shares are now attractively valued. “We were concerned with its valuation/expectations and risks to its ongoing aggressive price realization relative to what the market seemed to be discounting,” he added. “We believe the pullback makes both upside potential and magnitude of downside risk more attractive from here.” Meanwhile, the company’s business model remains solid. Not only are FICO scores an industry-standard consumer credit risk metric, but they are also deeply embedded in end markets, making switching a costly and time-consuming endeavor. “We consider FICO Scores the best financial model we’ve seen, think it has a very attractive market position and provides systemic value, believe it will continue to plan to manage to Scores pricing increases, and we expect material eventual mortgage volume normalization/recovery,” Meuler wrote. While regulatory risks are certainly a threat to keep in mind, Meuler added that they are now much better priced in. More importantly, regulating Fair Isaac’s pricing would likely require new legislation, which is a “low-probability potential outcome.” Additionally, the company could begin to see growth opportunities in other segments. “Outside mortgage, FICO Scores costs are low, and it may be in the early stages of more aggressive price realization in Auto, with plans to increase Scores monetization elsewhere in coming years,” Meuler wrote.
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