RBC remains optimistic on Fair Isaac Corp. (NYSE:FICO) after the recent comments from Bill Pulte, Director of the Federal Housing Finance Agency (FHFA), led to selling pressure on the stock. In his note on May 20, an RBC analyst noted that while speaking at a Mortgage Bankers Association conference, the FHFA Director raised concerns about FICO’s high costs and said they are actively addressing them. In addition, he called for a shift from tri-merge to bi-merge credit scores in the underwriting process, which, if implemented, will decrease FICO’s scores volume.
A portfolio of mortgage-backed securities with a magnifying glass, emphasizing the detail of credit risk management.
The RBC analyst also highlighted that Mr. Pulte discussed the potential privatization of the government-sponsored enterprises (GSEs) Fannie Mae (FNMA) and Freddie Mac (FMCC). The analyst believes privatization would mean more competition for FICO’s mortgage credit score business. However, his analysis suggests that GSE privatization will not materially impact FICO’s business. He therefore maintained his Outperform rating with a price target of $2,170.
On May 21, an analyst from Jefferies also expressed his bullish stance on FICO, believing the development to be temporary. He mentioned that while the scrutiny over mortgage costs is fair, FICO’s credit-scoring fees are less than 1% of closing costs. He believes both these developments will have a manageable impact and that FICO’s long-term growth prospects remain intact. He called the decline an opportunity to accumulate and reiterated his Buy rating with a $2,500 price target.
Fair Isaac Corp. is an applied analytics company that provides software and the widely used FICO Score. It also offers consumers online services that enable them to access and understand their FICO Scores, the standard measure in the U.S. of consumer credit risk.
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