Our POWER BUY is Fair Isaac, a stock that’s rocketed 66.0% for our subscribers over the last year.
Even better, it’s up a whopping 6,978.7% since we first recommended it in February 1999!
We think the shares still have room to move much higher as the firm continues to develop new software products for international markets. Get it now and continue to grow with this Power Buy!
FAIR ISAAC CORP. (New York symbol FICO; www.fairisaac.com) is best known for its FICO Scores software. It lets lenders make better decisions about customer creditworthiness. Through your shares, you also benefit from the company’s programs to help credit-card issuers reduce fraud and analyze the spending patterns of cardholders.
We were early to identify that business model as a winning strategy—one with the potential to offer our subscribers strong and sustainable gains. We haven’t been disappointed: Since we first recommended Fair Isaac as a buy in February 1999, the stock is up a whopping 6,978.7%. In the last year alone it has gained 66.0% even as the Dow Jones Industrial Average is up just 1.9% in that time.
Fair Isaac’s revenue rose steadily over the six years from 2018 to 2023. Revenue increased 46.6%, from $1.03 billion in 2018 (fiscal years end September 30), to $1.51 billion in 2023.
Excluding one-time items, earnings climbed 157.3% as the company expanded into higher-profit-margin services. Earnings rose from $194.3 million, or $6.23 a share, in 2018, to $500.0 million, or $19.71 a share, in fiscal 2023.
For the quarter ended September 30, 2023, revenue rose 11.8%, to $389.7 million from $348.7 million a year earlier. Software revenues, which include the company’s analytics and digital decision-making technology, were up 11%.
Meanwhile, Scores revenue, which includes the company’s business-to-business (B2B) scoring solutions and its business-to-consumer (B2C) solutions, rose 12%.
Excluding one-time items, Fair Isaac earned $126.7 million in the quarter. That was up 12.7% from $112.5 million. Per-share earnings jumped 13.9%, to $5.01 from $4.40, on fewer shares outstanding.
The company continues to see its shares as undervalued—and plans to keep buying back its stock. In October 2022, Fair Isaac’s board of directors approved a stock repurchase program to acquire up to $500 million more in outstanding shares.
This program follows other aggressive share repurchases: in the fiscal year ended September 30, 2022, it bought back $1.1 billion in shares; in the fiscal year ended September 30, 2023, it repurchased $405.5 million in shares.
Stock buybacks reduce the number of shares outstanding. That boosts earnings per share since profit is then divided among fewer shares. The higher per-share earnings make the stock more attractive to investors and that spurs the share price.
Growth Stocks: High R&D should boost domestic and international earnings for Fair Isaac
Fair Isaac spends a high 11% of its revenue on research and development. Note that the high research spending makes the company appear less profitable than it really is. That’s because R&D gets written off against earnings in the year in which it is spent. The current level of R&D investment helps the company stay ahead of changes in the industry and will pay off in faster sales and earnings growth.
In response to rising unemployment during the pandemic, Fair Isaac launched the FICO Resilience Index. This Index takes into account general economic conditions to measure a borrower’s ability to weather periods of economic disruption or volatility. When lenders use it along with existing FICO tools, they can better identify borrowers who have a lower FICO Score but are still well positioned to take on more debt.
Right now, just 28% of the company’s revenue is derived from business outside the U.S., and international growth represents a significant growth area.
Meanwhile, Fair Isaac’s applications business will continue to gain longer term from expanding demand for fraud and digital security software. What’s more, it has formed a strategic partnership with Equifax, the major U.S. credit reporting firm. This includes selling to banks the consumer data it gathers from clients.
In the short term, it’s possible that demand for the company’s credit scoring solutions will weaken as rising interest rates slow home buying. Still, demand from automotive and personal-lending clients should hold up well. At the same time, those new credit-scoring products for international use look extremely promising.
Recommendation in Power Growth Investor: Fair Isaac Corp. is a buy.
We hope you benefited from this analysis of Fair Isaac Corp. The company is just one of the top-performing stock picks of our Power Growth Investor newsletter.
Of course, not all our picks over the years have produced these kind of spectacular gains. Some, in fact, have led to losses. But all portfolios need superstar stocks like this to offset those inevitable losses.
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