FICO | Notes

 

Fair Isaac: Stock Slip Appears To Be Fueled by FHFA Director's Comments

Rajiv Bhatia

May 21, 2025

Fair Isaac's shares fell 8% on Tuesday, May 20, and are down an additional 15%-plus a day later, leaving the stock down just over 20% since Monday's close. Equifax is also down more than 5% from Monday's close, as is TransUnion.

Why it matters: Compared with just a 1% decline in the Morningstar US Market Index since Monday's close, the drop in Fair Isaac's share price is notable. The catalyst appears to be recent comments by Bill Pulte, the director of the Federal Housing Finance Agency, or FHFA, about making FICO scores as “economical as possible.”

• This isn't the first time that concerns about Fair Isaac's pricing by government officials have affected the stock price. Missouri Sen. Josh Hawley's March 2024 comments about the firm resulted in a 6% decline in Fair Isaac's stock price.
• According to industry trade publication HousingWire, Pulte said the agency is actively looking at moving from the mandatory tri-merge for FHFA mortgages to an optional bi-merge. This marks a departure from the position of Republican senators like South Carolina's Tim Scott, who have opposed a move away from the mandatory tri-merge for FHFA mortgages.

Long view: Fair Isaac's valuation of 76 times fiscal 2025 adjusted consensus earnings (provided by FactSet) left little room for error, in our view. Overall, though, we expect to maintain our $1,600 per share fair value estimate on the firm and regard shares as slightly pricey at current levels, even with the sell-off so far this week.

• We maintain our wide moat rating. We believe that Fair Isaac's moat stems from a network effect and that FHFA's authority to limit Fair Isaac's pricing is limited. We also believe that switching to a new score would require coordination among different stakeholders and would be costly.
• We continue to find shares of TransUnion attractive and note that among TransUnion, Equifax, and Fair Isaac, the company has the smallest exposure to the US mortgage market.