FICO Surges 49% YTD: Should You Buy, Hold or Sell the Stock?

Core Viewpoint - Fair Isaac Corporation (FICO) has significantly outperformed its peers in the IT Services industry and the broader Computer & Technology sector year-to-date, with a stock price increase of 49% compared to 16.7% for Infosys and 16.8% for ServiceNow, while the sector overall appreciated by 12.5% [1] Group 1: Stock Performance and Revenue Growth - The strong stock performance is attributed to the robust adoption of the FICO Platform and FICO Score, leading to a significant increase in clientele and top-line growth [2] - In the third quarter of fiscal 2024, FICO reported a 12% year-over-year increase in revenues, with Software revenues growing by 5% and Scores revenues by 20% [2] Group 2: Market Position and Demand - FICO maintains a strong position in the consumer credit scoring market, bolstered by the adoption of FICO Score 10-T for non-GSE mortgages, which covers over $126 billion in annual originations and $380 billion in servicing [3] - The FICO Platform and SaaS services experienced growth in the third quarter of 2024, with total Annual Recurring Revenue (ARR) increasing by 10% and platform ARR by 31% [4] Group 3: Strategic Partnerships and Innovations - FICO's partnership with Cognizant to launch a cloud-based real-time payment fraud prevention solution highlights its expanding clientele and commitment to enhancing security measures through AI and machine learning [5] Group 4: Financial Outlook - For fiscal year 2024, FICO expects total revenues of $1.7 billion, with a non-GAAP earnings estimate of $23.16 per share, while the Zacks Consensus Estimate for revenues is $1.71 billion, indicating a year-over-year growth of 13.23% [6] - The consensus for fiscal 2024 earnings is $23.77 per share, reflecting a year-over-year growth of 20.66% despite a slight decline in estimates over the past 30 days [7] Group 5: Investment Considerations - Despite the strong portfolio and growing client base, challenges such as a slowdown in mortgage origination due to rising interest rates and competition in the Score and Software segments may impact FICO's top-line growth in 2024 [8] - FICO's current forward 12-month Price/Sales ratio is 26.23X, which is higher than its median of 20.20X and the sector's 10.51X, indicating a potentially stretched valuation [8]