Executive Summary
BOTTOM LINE UP FRONT
| Metric | Value |
|---|---|
| Recommendation | BUY |
| Current Price | $1,283 |
| Fair Value (Base Case) | $2,180 |
| Margin of Safety | 41.1% |
| Wealth Preservation Score | 67/100 |
| Probability-Weighted Return | 13.6% CAGR |
| Risk Level | MODERATE |
Thesis: Fair Isaac Corporation commands a near-monopoly in U.S. credit scoring — the FICO Score is used in 90% of top lending decisions and cited in 98.8% of all securitized dollars. A 42% correction from 52-week highs creates the catalyst for an asymmetric entry point, offering a probability-weighted return of 13.6% CAGR with capital preservation even in the bear case.
The Risk: Regulatory intervention could cap FICO’s pricing power, and negative shareholder equity resulting from aggressive buybacks introduces balance sheet complexity. Even in this adverse scenario, capital is preserved with a positive 2.5% CAGR.
Table of Contents
- Executive Summary
- Why FICO Demands Institutional Attention Now
- Business Quality Assessment: The Monopoly Advantage
- Financial Fortress Analysis
- FICO Stock Analysis: Valuation Framework and Where the Opportunity Lives
- Scenario Analysis: Probability-Weighted Returns
- Risk Assessment Matrix
- Peer Comparison: Why FICO Wins on Unit Economics
- Capital Allocation and Earnings Quality
- Investment Decision Framework
- Institutional Execution Tools
Why FICO Demands Institutional Attention Now
This FICO stock analysis comes at a pivotal moment. The stock has corrected approximately 42% from its September 2025 high of $2,215 to the current $1,283. For a business that delivered 16% revenue growth and 27% earnings growth in fiscal 2025, this decline is entirely valuation-driven — not business-driven.
The forward P/E of 38.3x on fiscal 2026 guided EPS of $33.47 sits at the 25th percentile of FICO’s historical valuation range. For a company generating 47.8% ROIC against an estimated 9.5% WACC — that is nearly 5x value creation above the cost of capital — this compression presents a rare opportunity.
What makes this FICO stock analysis particularly compelling is the nature of the franchise. FICO does not compete. It operates as a de facto standard embedded in the plumbing of the American lending system. Fannie Mae and Freddie Mac mandate its use. Switching would require coordinated action across the entire lending industry, credit bureaus, regulators, and secondary markets.
That is not competition. That is entrenchment.
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Business Quality Assessment: The Monopoly Advantage
Our equity research begins where all institutional-grade analysis should — with the competitive moat.
FICO operates through two segments: Scores (59% of revenue, ~89% EBIT margins) and Software (41% of revenue). The Scores segment is the crown jewel. FICO does not own, collect, or store consumer credit data. The three credit bureaus — Equifax, Experian, and TransUnion — distribute FICO Scores using FICO’s proprietary algorithms applied to their data.
This means FICO earns a royalty on every score generated with virtually zero marginal cost. The company employed just 3,810 people while generating nearly $2 billion in revenue. Capital expenditure in fiscal 2025 was a mere $8.9 million.
Competitive Moat Assessment
The FICO Score has been the dominant credit scoring methodology for over four decades. Our institutional analysis rates the moat across four critical dimensions.
De Facto Standard / Monopoly — Durability: 10/10. Used by 90% of top U.S. lenders. Cited in 98.8% of securitized lending decisions. Government-sponsored enterprises mandate its use in mortgage underwriting. This is not a competitive advantage — it is an industry standard.
Switching Costs — Durability: 9/10. The FICO Score is embedded in lending workflows, regulatory frameworks, GSE mandates, and loan-level price adjustment grids. Displacement requires coordinated action across thousands of institutions simultaneously.
Network Effects — Durability: 8/10. More data continuously improves model accuracy, creating a virtuous cycle that reinforces the standard.
Regulatory Entrenchment — Durability: 9/10. GSEs mandate FICO Scores. LLPA grids reference FICO. The DOJ opened and closed an antitrust investigation in 2020 without action.
Moat Erosion Risk: LOW. VantageScore, developed by the three credit bureaus as a direct competitor, has gained minimal traction after nearly two decades. This research assigns near-zero probability to competitive displacement within any reasonable investment horizon.
Financial Fortress Analysis
Profitability Metrics
Every profitability metric in this equity research is improving and sits at exceptional absolute levels.
| Metric | FY2025 | FY2024 | FY2023 | FY2022 | Trend |
|---|---|---|---|---|---|
| Revenue | $1,991M | $1,718M | $1,514M | $1,377M | ↑ |
| Gross Margin | 82.2% | 79.7% | 79.5% | 78.1% | ↑ |
| Operating Margin | 46.5% | 42.8% | 42.4% | 39.4% | ↑ |
| Net Margin | 32.8% | 29.9% | 28.4% | 27.1% | ↑ |
| FCF Margin | 38.7% | 36.3% | 34.2% | 32.8% | ↑ |
| ROIC | 47.8% | 38.2% | 33.5% | 30.1% | ↑ |
Gross margins above 82% reflect the near-zero marginal cost of score distribution. Operating margins approaching 47% and ROIC of 48% are among the highest in the entire software industry. The five-year margin expansion trend demonstrates ongoing pricing power and operating leverage — the hallmark of a monopoly compounder.
Balance Sheet: A Non-Traditional Assessment
FICO’s balance sheet presents a unique analytical challenge. The company has negative shareholder equity of -$1.7 billion, which is entirely a result of aggressive share repurchases ($1.4 billion in fiscal 2025 alone) rather than accumulated operating losses.
Traditional debt-to-equity metrics are meaningless here. Our FICO stock analysis focuses on what matters for solvency:
Interest Coverage: 6.8x — EBIT covers interest expense nearly 7 times over. Adequate for the risk profile.
FCF / Total Debt: 24.1% — Free cash flow covers nearly a quarter of total debt annually.
Altman Z-Score: 12.98 — Well above the 3.0 threshold indicating strong financial health.
Debt Structure: 87% Senior Notes — Long-dated maturities with no cliff risk. A $415 million revolving credit facility provides additional liquidity.
Solvency Verdict: ADEQUATE. The underlying cash generation is exceptionally strong at $770 million in FCF on $2.0 billion revenue (39% FCF margin).
FICO Stock Analysis: Valuation Framework and Where the Opportunity Lives
This section of our FICO stock analysis reveals why the current price represents a compelling entry.
Relative Valuation
| Metric | Current | 5Y Average | Percentile |
|---|---|---|---|
| P/E (Trailing) | 48.3x | 55.0x | ~35th — Below Average |
| P/E (Forward) | 38.3x | 45.0x | ~25th — Attractive |
| EV/EBITDA | 34.0x | 42.0x | ~30th — Below Average |
| P/FCF | 41.5x | 50.0x | ~30th — Below Average |
FICO trades at the lower quartile of its historical valuation range on multiple metrics. The trailing P/E of 48x sits below the 5-year average of 55x, and the forward P/E of 38x on guided FY2026 EPS represents one of the most attractive entry points in recent years.
Fair Value Calculation
Our FICO stock analysis derives fair value through multiple approaches:
Normalized EPS Fair Value: $28.50 × 50.0x fair P/E = $1,425 (conservative floor)
Forward Fair Value (FY26E): $33.47 × 45.0x = $1,506
Base Case 3-Year Fair Value: ~$2,180 (reflecting 15% EPS CAGR + modest re-rating)
At the current price of $1,283, the margin of safety to the base case is 41.1%. While FICO still commands a premium relative to the broad market, this premium is justified by monopoly economics, 82% gross margins, 48% ROIC, and 15%+ earnings growth.
Valuation Verdict: ATTRACTIVE.
Scenario Analysis: Probability-Weighted Returns
Our FICO stock analysis models three scenarios over a 10-year horizon. Since FICO pays no dividend, total return equals price appreciation. Starting EPS base: FY2026 guided GAAP EPS of $33.47.
| Scenario | Revenue CAGR | EPS CAGR | Terminal P/E | 10Y Price Target | Total CAGR | Weight |
|---|---|---|---|---|---|---|
| Bear | 5.0% | 7.0% | 25.0x | $1,646 | 2.5% | 25% |
| Base | 12.0% | 15.0% | 35.0x | $4,740 | 13.9% | 50% |
| Bull | 18.0% | 22.0% | 45.0x | $11,070 | 24.1% | 25% |
Probability-Weighted Expected Total Return: 13.6% CAGR
What Each Scenario Assumes
Bear Case (25% Probability): Regulatory intervention limits pricing power. VantageScore gains meaningful traction. Mortgage volumes remain depressed. Multiple compresses to 25x. Even here, this FICO stock analysis shows capital is preserved with a positive 2.5% CAGR.
Base Case (50% Probability): FICO continues mid-teens revenue growth. Software platform ARR accelerates. FICO Score 10T adoption drives incremental mortgage revenue. Share count declines 2-3% annually, adding further EPS growth. Multiple stabilizes at 35x.
Bull Case (25% Probability): Full pricing power maximization across all verticals. International expansion gains traction. FICO Platform becomes a major SaaS revenue driver. AI-powered analytics through FICO Falcon Fraud Manager opens new revenue streams.
10-Year Wealth Comparison
| Metric | This Position | HYSA (4.0%) | Outperformance |
|---|---|---|---|
| Total Return CAGR | 13.6% | 4.0% | +9.6% |
| $100K Becomes | $358K | $148K | +$210K |
Risk Assessment Matrix
No institutional equity research is complete without a rigorous risk evaluation. Our aggregate risk score is 4.1/10 (MODERATE).
| Risk Category | Score (1-10) | Key Concern | Mitigation |
|---|---|---|---|
| Balance Sheet | 6 | Negative equity; $3.2B debt | FCF covers debt 24%; Z-Score 12.98 |
| Earnings Volatility | 3 | Lending volume cyclicality | Pricing power offsets volume declines |
| Competitive Threat | 2 | VantageScore | Minimal traction after 20 years |
| Regulatory Risk | 5 | CFPB scrutiny; antitrust | DOJ investigation closed 2020 |
| Management Risk | 4 | Key-man risk (CEO Lansing) | 14-year tenure; independent board |
| Valuation Risk | 5 | 48x trailing P/E still premium | 42% correction; 38x forward |
Recession Stress Test
Our institutional research models a severe recession scenario. Revenue decline of 10-15%, EPS decline of 15-20%, and expected stock drawdown of 25-40%. Critically, FCF remains positive in stress and no capital raise would be required. Recovery timeline based on historical precedent: 12-24 months.
Permanent capital loss probability: Less than 5%. The 42% correction from highs has already absorbed significant valuation risk.
Monitoring Triggers and Exit Conditions
Revenue growth below 5% for 2+ quarters triggers position reassessment. Interest coverage falling below 4.0x triggers immediate sale. ROIC below 20% for 2+ years signals competitive deterioration. Forward return below 5% (price above $3,500) warrants profit-taking and rotation.
Peer Comparison: Why FICO Wins on Unit Economics
FICO has no true direct competitor in credit scoring. The closest peers are credit bureaus and financial data providers. This FICO stock analysis benchmarks the franchise against the best available comparisons.
| Metric | FICO | Equifax (EFX) | Verisk (VRSK) | MSCI (MSCI) |
|---|---|---|---|---|
| Gross Margin | 82.2% | 56.8% | 69.5% | 82.0% |
| Operating Margin | 46.5% | 21.8% | 42.5% | 53.1% |
| ROIC | 47.8% | 8.5% | 22.1% | 32.5% |
| Revenue Growth | 15.9% | 8.2% | 7.5% | 15.8% |
| P/E (Forward) | 38.3x | 32.0x | 38.5x | 40.2x |
| FCF Margin | 38.7% | 16.2% | 35.0% | 42.0% |
FICO possesses the highest ROIC (47.8%), the highest gross margins (82.2%), and the fastest revenue growth (15.9%) among peers. The forward P/E of 38x is comparable to peers despite significantly superior unit economics. While FICO lacks a dividend (peers offer 0.5-0.9%), its monopoly position provides stronger fundamental downside protection than peers who face genuine competition.
Capital Allocation and Earnings Quality
Earnings Quality: HIGH
Operating cash flow of $779 million versus net income of $652 million yields a 119% cash conversion ratio. Cash flow consistently exceeds reported earnings, confirming genuine economic profit generation. No financial restatements in the past five years. Conservative accounting practices with clean audit opinions.
Share Repurchase Program: EXCEPTIONAL
This FICO stock analysis highlights one of the most aggressive buyback programs in the technology sector.
Share count has declined from 29.2 million (FY2020) to 24.0 million (FY2025) — nearly 20% reduction in five years. FY2025 repurchases totaled $1.41 billion (833,000 shares), the highest annual level in company history. The annualized share count decline of approximately 3.9% directly enhances per-share economics.
FICO does not pay a dividend. The company returns capital exclusively through repurchases. For the wealth preservation mandate, the aggressive buyback program effectively functions as a synthetic yield of 4-5% with the added benefit of tax efficiency versus cash dividends.
Management Quality: GOOD
CEO William J. Lansing has led the company since January 2012 — over 14 years. Under his tenure, FICO has delivered 5,333% cumulative total shareholder return, placing him in the top 1% of Russell 3000 CEOs. Capital allocation has been disciplined: no large acquisitions, consistent buybacks funded by FCF, and steady margin expansion.
Investment Decision Framework
Wealth Preservation Score: 67/100
| Component | Score | Weight | Contribution |
|---|---|---|---|
| Downside Protection | 55/100 | 45% | 24.8 |
| Return Adequacy | 100/100 | 30% | 30.0 |
| Quality Score | 50/100 | 25% | 12.5 |
| COMPOSITE | 67/100 | 100% | 67.3 |
All absolute requirements pass: bear case return is positive, base case exceeds 7% hurdle, solvency is adequate, and permanent loss probability is below 10%.
Recommendation: BUY — Standard Position.
Entry Strategy: Market order at current levels (~$1,283). Consider scaling in on further weakness toward $1,200 support.
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This FICO stock analysis is prepared by Moschovakis Capital Research and is for informational purposes only. It does not constitute investment advice. Past performance is not indicative of future results. All investments involve risk, including loss of principal. The analyst may hold positions in securities discussed. Affiliate relationships exist with execution platforms listed above; these do not influence analytical conclusions.
Report Date: February 2026 | Classification: Public Summary — Full institutional analysis available via PDF download.