Fair Isaac Corp.

FAIR ISAAC CORP. $37 (New York symbol FIC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 57.4 million; Market cap: $2.1 billion; WSSF Rating: Average) develops statistical-based credit scoring systems that calculate the likelihood an individual will pay back a loan. The company’s best-known product, the FICO score, helps banks, credit card companies and other lenders cut their loan losses. The stock fell last year after three leading credit bureaus, Equifax, Experian, and TransUnion, teamed up to launch a new credit score to compete with FICO. However, they also offer FICO scores to their clients. Fair Isaac feels these three firms have a strong incentive to push their own system instead of paying fees to use FICO, and the company has filed an antitrust lawsuit. It could take years to settle, but the suit improves the company’s long-term prospects....

FAIR ISAAC CORPORATION $35.39 (New York symbol FIC; SI Rating: Average) (415- 472-2211; www.fairisaac.com; Shares outstanding: 57.4 million; Market cap: $2.0 billion) continues to put in place changes to boost its sales and profits. The company has reorganized its sales-force into teams based on clients instead of product lines. This should help it develop better relationships with clients, and encourage them to buy more of its products. The company is also selling off low-profit or non-core operations where it lacks a competitive advantage. This includes the recent sale of part of its mortgage-related operations. Fair Isaac is also doing a good job of competing with a new credit scoring system created by three credit agencies....

FAIR ISAAC CORP. $36.31, New York symbol FIC, fell about 10% after the company cut its earnings and revenue forecasts for the rest of the fiscal year ending September 30. The company now expects to earn between $1.55 and $1.65 a share, on revenue of $795 million to $805 million. Fair Isaac had previously forecast 2007 earnings of $2.15 a share on revenue of $870 million. The stock now trades at 23.0 times the midpoint of its new fiscal 2007 profit range. But Fair Isaac continues to spend close to 10% of its revenue of $14 a share on research, so it’s more profitable than it appears. The company did not immediately provide a reason for the lower forecasts, which helped fuel the drop. But it seems to be having trouble reorganizing its salesforce into teams that serve clients, rather than specializing in product lines. Fair Isaac feels this will help it develop better relationships with its clients, and spur them to buy more of its products....

FAIR ISAAC CORP. $36 (New York symbol FIC; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) aims to spur its profit growth with a new restructuring plan. It will cut roughly 8% of its workforce, which will cost it $5.7 million for severance and other items. But the plan should save Fair Isaac $24 million (pre-tax) a year. To put that in context, the company earned $0.40 a share (total $27.0 million) in its second fiscal quarter ended March 31, 2006. The latest per-share earnings figure included a $0.02 writedown, and $0.10 in employee stock option expenses....

FAIR ISAAC CORP. $39 (New York symbol FIC; WSSF Rating: Average) has successfully made its FICO credit scoring system, which calculates the likelihood that an individual will pay back a loan based on prior credit history and other factors, into an industry standard. In fact, 99 of the top 100 U.S. banks, and half of the top 50 banks in the world, use FICO scores to cut their credit risk. In March, three major credit agencies teamed up to launch a new scoring system that will compete with FICO. The FICO system supplies about half of Fair Isaac’s profit, and the news cut the stock from around $44 to $36.50. However, we feel that most of Fair Isaac’s customers would be reluctant to switch to a new, unproven system. Fair Isaac is also doing a good job cutting its reliance on FICO scores with new products, such as software that helps banks and retailers detect fraudulent transactions. Fair Isaac is still a buy for aggressive investors.

I still haven’t come across anything to beat FAIR ISAAC INC. $44 (New York symbol FIC; WSSF Rating: Average), our “Stock of the Year” for aggressive investors in 2005. So for now, we’ll let Fair Isaac hang on to the Stock of the Year title for 2006. Our Stocks of the Year, particularly Symantec (Nasdaq symbol SYMC) from 2000-2003 and Autodesk (Nasdaq symbol ADSK) in 2004, have produced great gains for us, averaging 61.6% in the past five years. This record may lead some readers to overindulge in our choice for 2006. Unfortunately, in the stock market, nobody gets it right every time. Our most widely followed stock of the year may turn out to be the one that disappoints....