Investing.com - Goldman Sachs reiterated a Buy rating on Fair Isaac (NYSE:FICO) with a price target of $2,070.00 . This is based on the upcoming agreement with the Federal Housing Finance Agency (FHFA) on the implementation of the company's FICO 10T credit scoring model. The price target corresponds to an upside potential of around 17% compared to the current price of USD 1,763.68. However, data from InvestingPro indicates that the stock is trading at a high P/E ratio of 66.
The investment bank views the potential launch of FICO 10T as a positive catalyst for the company, noting that the newer model has higher credit risk scoring accuracy compared to VantageScore 4.0 and the classic FICO score, which could potentially strengthen Fair Isaac's competitive position in the market.
FICO 10T is offered in the mortgage, auto and credit card markets at the same price point as Classic FICO, with pricing structures varying by industry. The company offers both performance-based and score-based pricing options in the mortgage segment (for both conforming and non-conforming mortgages), maintaining consistency with its Classic FICO offering. This pricing strategy appears to be successful, as Fair Isaac has achieved an impressive gross profit margin of 82.2% and generated nearly $770 million in free cash flow over the last twelve months.
Fair Isaac launched a pilot program about a year ago that offers FICO 10T at no additional cost to lenders who purchase Classic FICO for mortgage purposes. The program has gained strong traction in the non-standard loan market, with six of the top ten lenders currently participating.
Goldman Sachs anticipates that lenders already using FICO 10T in non-compliant markets will expand its use to compliant markets once Government Sponsored Enterprises formally implement the new scoring model.
