Fair Isaac (NYSE:FICO) is much more of a household name than you might think. The creator of the FICO score, this company has worked on predicting consumer behavior for nearly 70 years. FICO is currently surging after reporting earnings, but the company lives in a strange market space. It’s indispensable by some standards. Yet, given the conditions of the day, it’s easy to wonder just how effective it actually is. I’m neutral on Fair Isaac, mainly because its capacity as a predictive engine is useful. However, considering current market conditions, that usefulness may be limited.
Looking into its Q4-2022 results, the company posted earnings of $4.40 per share, which handily beat estimates of $4.08 per share. It also represented a 12.24% jump against last year’s earnings-per-share total of $3.92.
Revenue proved a different story, however. Despite the sheer scope of the earnings beat, the company still lagged estimates for revenue. Fair Isaac posted $348.75 million in revenue, which was 1.79% short of estimates.
Is Fair Isaac a Good Buy Right Now?
Turning to Wall Street, Fair Isaac has a Moderate Buy consensus rating. That’s based on four Buys, two Holds, and one Sell assigned in the past three months. However, the average Fair Isaac price target of $525 implies 5.23% downside potential. Analyst price targets range from a low of $373 per share to a high of $630 per share.
Currently, Fair Isaac has an 8 out of 10 Smart Score on TipRanks, the lowest level of “outperform,” suggesting a solid chance that the company will do better than the broader market.
Still, some investor metrics are proving a mixed bag. Right now, insider trading at Fair Isaac has swung negative. Insiders sold $254,400 worth of shares in the last three months.
Meanwhile, hedge funds are the company’s saving grace. Hedge funds increased holdings by 140,500 shares last quarter, skewing the sentiment to “very positive.”
The company’s revenue trend is also somewhat mixed, as it seems to routinely fall in around the same range. The company just posted $348.75 million in revenue. Last quarter, it was $348.97 million. Before that, $357.19 million. The lowest revenue figure posted in the last year was $322.36 million, which offers a total variation of at most 11% for the entire year.
An Oracle That’s Only Occasionally Right
The biggest problem for Fair Isaac right now isn’t in its share price. Though it’s huge and slightly overvalued according to current price targets, that’s a smaller problem than might be expected. The big problem is the company’s primary stock in trade: customer analysis.
Analytics has been an increasingly valuable part of the retail landscape for some time now. Fair Isaac, as what might be described as one of the first such operations, could be considered valuable for its sheer longevity, if nothing else. Something that’s around and surviving for 70 years generally only does so because it’s good at what it does.
That’s actually part of the problem. The macroeconomic environment we’re going into right now really doesn’t have much in the way of parallel.
The inflationary picture is unbelievable. We just came off years of government stimulus, which has done bizarre things to the M2 money supply. The Federal Reserve has engaged in a series of interest rate hikes; the last time rates were this high was in 2008, and everyone remembers what happened in 2008.
Having some idea of what consumers will do is a great thing. Analytics firms have been working this angle for years; telling businesses that they can analyze customer data to derive meaningful patterns about store hours, certain product offerings, or the like can give businesses a real edge. However, trying to pull those patterns out of a largely unique era is going to be much harder.
Worse, many businesses are likely to think that it doesn’t matter much what the patterns are at this point. With consumers frantically cutting expenses in the face of rising inflation and declining discretionary income, it doesn’t take a crystal ball to tell you that the outlook isn’t good.
Conclusion: A Good Plan, but Perhaps Not Today
The biggest reason I’m neutral on Fair Isaac is that the company has a good position – or rather, it would ordinarily have a good position if times were more normal. With the company trading above its average price target, it suggests that some losses are likely to come.
Throw in a macroeconomic environment that’s not exactly conducive to predictions right now, and that only underscores the problem Fair Isaac faces.
Predictive engines require a basis for prediction. Right now, we’re in times that don’t match up well with any other time in the past. That’s going to make predictions about the future very shaky indeed, and that means potential trouble for Fair Isaac.