Fair Isaac Corporation (NYSE:FICO) came under discussion during the October 1 episode of Mad Money as Jim Cramer reviewed the previous quarter’s S&P 500’s weakest performers. He said:
On the first day of a brand new quarter, October 1, you need a compass. You know what provides you the best compass? What can navigate you the best? Last quarter… We all use S&P 500 as our benchmark in this business. Now, the index finished up 2.03% for the third quarter. Not bad, not great… Okay, now, how about the worst performers? The ones that really did not help, how about that? First is Fair Isaac, the keeper of the FICO scores, down 50%…
Bill Pulte, the head of the Federal Housing Finance Agency, jack-of-all-trades kind of, believes FICO to be too powerful and too expensive. He’s been trying to get more competition to make it cheaper to get a loan. I’m in favor of that. But the banks I surveyed, they actually like FICO. They think it works. It’s worked for years. They trust it. Fair Isaac’s been a winner for so long, but now has a powerful opponent in the government who wants it to go away.
FICO’s mortgage moat just took a direct hit. See why one regulator move sent the stock down 16%—and whether the selloff was justified.
Strong Scoring Revenue Meets A Lower Valuation
Fair Isaac Corporation reported fiscal third-quarter revenue of $674.2 million, up 26% year-over-year, and net income of $237.2 million, compared with $181.8 million a year earlier. Scores revenue increased 41% to $458.9 million. Business-to-business revenue grew 49%, primarily because of higher mortgage origination scores unit price.
Its software platform also expanded. Platform annual recurring revenue increased 62%, although total software revenue grew just 2% as non-platform annual recurring revenue declined 17%. Management raised its fiscal 2026 revenue outlook to $2.53 billion and adjusted EPS guidance to $42.43.
The share-price decline has reduced the earnings multiple. FICO trades at 13.3x forward earnings, below Equifax’s approximately 15.3x. Equifax provides a relevant credit-data comparison, although its business mix differs from FICO’s scoring and software operations. Nevertheless, both trade at a lower forward earnings multiple than S&P 500 and their sector median.
Don’t Miss: Equifax (EFX) Hits a 52-Week Low. The Shares Are Down 42% From Their High.
Mortgage Competition Moves Beyond Policy Announcements
The competitive threat has become concrete. On September 28, Rocket Mortgage announced that VantageScore 4.0 would become its preferred scoring model for eligible loans during the fourth quarter. Rocket said testing showed that the model helped more customers qualify while reducing scoring costs.
The change is not a complete abandonment of Fair Isaac Corporation. Rocket said investment-property mortgages, second-home mortgages, FHA loans, jumbo loans, and certain other products would continue using FICO scores for now. Its mortgage broker business will offer both scoring models. Nevertheless, the announcement establishes an actual customer transition in the market where FICO’s latest growth was driven largely by higher prices.
The FHFA’s broader effort adds pressure. Reuters reported on September 4 that Pulte had directed Fannie Mae and Freddie Mac to approve all lenders to use VantageScore, expanding beyond an initial rollout involving 50 lenders. We also expanded on the news in one of our articles.
Fewer Hedge Fund Holders And Double-Digit Short Interest
50 hedge funds held Fair Isaac Corporation in Q2, compared with 60 in the preceding quarter, based on Insider Monkey’s database of more than 1,000 funds. Among those hedge funds, Valley Forge Capital owned a position of 672,186 shares, making it the largest shareholder. The supplied short-interest figure was 10.82% of the public float as of mid–September.
Fair Isaac Corporation’s recent results show continued earnings growth, and its forward multiple is below Equifax’s. However, Rocket’s announced transition gives investors a specific competitive development to assess alongside the policy pressure described by Cramer.
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