Understanding Fair Isaac’s Newly Added Risk Factors


Fair Isaac (FICO) is a global analytics software company best known for its credit scoring service. Many leading banks around the world use its decision management solutions.

With this in mind, let us take a look at the company’s recent financial results and understand its newly added risk factors. (See Top Smart Score Stocks on TipRanks)

Q4 Financial Results

Fair Isaac reported revenue of $334.6 million for the fourth-quarter ended September 30, which fell short of the consensus estimate of $346.8 million. The company had posted revenue of $374.4 million in the same quarter last year. Adjusted earnings during the quarter stood at of $3.92 per share against $3.25 per share in the same quarter last year. Further, the figure was able to beat the consensus estimate of $3.13 per share.

Meanwhile, the company reported revenue of $1.32 billion and adjusted EPS of $13.07 for Fiscal Year 2021. For Fiscal Year 2022, it anticipates to post revenue of $1.35 billion and adjusted EPS of $14.12. (See Fair Isaac stock charts on TipRanks).

Risk Factors

According to the new TipRanks’ Risk Factors tool, FICO’s main risk categories are Finance & Corporate and Tech & Innovation, which account for 33% and 27%, respectively, of the total 30 risks identified for the stock. The company has recently updated its profile with three new risks.

Fair Isaac informs investors that its stock price has fluctuated even over matters unrelated to its operating performance. It cautions that the fluctuations may continue. Additionally, the company notes that technology and financial services stocks have sometimes experienced significant price fluctuations. It cautions that broad market fluctuations may adversely impact its business and result in goodwill impairment charges that could, in turn, hurt its earnings and stock price.

The company has told investors that the U.S. mortgage market contributes a significant portion of its Scores segment revenue. It says that Fannie Mae and Freddie Mac require U.S. lenders to use its FICO Scores for mortgages delivered to them. Therefore, it cautions that there could be a material adverse impact on its operating results and stock price if Fannie Mae and Freddie Mac were to stop or reduce the use of its credit scoring service.

The company warns investors that changes in demand among its existing customers, timing of new product launches, and fluctuations in economic conditions could cause its operating results to fall short of expectations. It adds this may trigger a market reaction that could cause the stock price to decline.

The Finance and Corporate risk factor’s sector average is at 40%, compared to FICO’s 33%. Shares of the company have declined about 30% year-to-date.

Price Target

Following Fair Isaac’s fourth quarter earnings report, Needham analyst Kyle Peterson maintained a Buy rating on the stock but lowered the price target to $550 from $630 (upside potential of 55.3%).

Consensus among analysts is a Strong Buy based on 5 Buys and 1 Hold. The average Fair Isaac price target of $519.17 implies 46.6% upside potential to current levels.

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