Fair Isaac Earnings: Decent Performance but High Valuation Makes Investors Unforgiving

Fair Isaac reported a mostly in-line fiscal fourth quarter. Revenue of $390 million was in line with the FactSet consensus estimate of $389 million. However, adjusted EPS of $5.01 missed the consensus estimate of $5.29 which is attributable to an elevated tax rate and investment spending in the software segment. Pricing in the firm’s scores segment continues to be strong which we think exemplifies our wide moat rating on Fair Isaac. As is customary, Fair Isaac gave its initial fiscal 2024 outlook; while revenue was in line with expectations, adjusted EPS of $22.45 missed the consensus expectation of $23.70. Fair Isaac’s outlook was not bad in our view and Fair Isaac tends to be conservative. However, Fair Isaac’s shares currently trade at 40 times the consensus 2024 adjusted earnings which leaves little room for error and thus we expect a negative market reaction. Overall, we will maintain our fair value estimate of $710 of Fair Isaac’s shares and we regard shares as pricey at current levels.