Fair Issac Corporation (FICO) - Owner Forever

I first became aware of Fair Isaac (FICO) years ago when researching financial companies. Its stock price always seemed stratospheric (often well above 40× P/E and sometimes nearing 70×), so as a value-minded investor I was hesitant. FICO is a rare gem that I want to own forever. It plays a central role in U.S. lending: virtually every mortgage, auto loan or credit card decision relies on a FICO® Score. The company’s dominance and long track record (it’s been a “must-have” licensee for decades) eventually convinced me to study the business closely. In doing so, I discovered that FICO has endured multiple credit cycles — even thriving through the 2008 financial crisis — by continuously upgrading its analytics and products.

Recently, FICO was under a lot of pressure from the administration. The head of FHSA (Federal Housing and Finance Agency) Mr. Pulte publicly accused FICO of being a monopoly and engaging in price gauging activities at the expense of American homebuyers. He later approved VantageScore (credit rating score built by three credit bureaus) to be used in federal backed mortgage underwritings. And introduced the bi-merge model, only requiring two out of three credit reports to be pulled for a mortgage deal to be effective, which threatened to cut FICO’s royalty stream by half if the majority of users adopted the bi-merge model. The market panicked under the bad press and potential of losing a third of its most profitable business. The stock fell by 50% from $2400 peak to $1300 levels. It is currently trading at 35x FWD P/E multiples, around its historical average. I remain bullish on FICO’s future, and plan to build my position around $1100-1200.

Bill Ackman has often articulated a simple but powerful investment principle: buy a great business facing short-term issues that obscure its long-term strength. FICO represents a parallel in the credit infrastructure space. Its moat is intact, its pricing power is only just being exercised, and the cyclicality of mortgage volumes is not a permanent impairment but a timing issue. Applying this principle, the current market pessimism is an opportunity to accumulate shares of a near-monopoly “toll booth” business at a valuation near its historical average, rather than at the frothy multiples it has often commanded.

Please See our Full report and Model Here:

https://www.horizonscapitals.com/s/FICO.pdf

https://www.horizonscapitals.com/s/fico.xlsx