By Mackenzie Tatananni

After a five-day slump, Fair Isaac shares staged a comeback. Analysts say the pullback in the credit-scoring stock was a blessing in disguise.

Baird analysts led by Jeffrey Meuler upgraded Fair Isaac stock to Outperform from Neutral but lowered their target for the price to $1,900 from $2,021. The selloff has opened up an attractive buying opportunity, the analysts wrote on Wednesday.

Shares of Fair Isaac climbed 7.7% to $1,619.94, snapping their losing streak and marking the largest same-day percentage increase since April. FICO was the best performer in the S&P 500 on Wednesday.

Now that the smoke has cleared, the analysts said, their concerns about the stock's valuation have largely dissipated.

"We always find assigning the 'right' multiple to FICO incredibly challenging (and we have been dead wrong on the stock in recent years)," the Baird team wrote. "Simply put, we think FICO Scores have the best financial model we have ever seen at a business."

Those words come as Bill Pulte, the director of the Federal Housing Finance Agency, has repeatedly criticized Fair Isaac's pricing through social media posts and in remarks at a conference last week. At least partly as a result, the shares fell nearly 32% over the five trading days through Tuesday, according to Dow Jones Market Data.

The benchmark S&P 500 fell just 0.4% over the same period.

Things took a sudden turn in the face of the Baird upgrade, as the analysts said that there was little Pulte could do to address many of his concerns with FICO. The director has shown interest in moving from the classic tri-merge credit report, which uses FICO Scores from all three major credit bureaus, to a bi-merge report that only uses two.

Efforts began under the Biden administration to make the shift, seen as potentially reducing costs by creating competition among credit-rating companies, but stalled in response to concern that averaging two credit scores might not accurately represent a borrower's creditworthiness.

Another point of contention is FICO's wholesale royalty fee for credit scores, which increased 41% to $4.95 from $3.50 last year. That, too, doesn't seem likely to change. Price regulation would likely require new legislation, "which seems possible but less likely," the analysts wrote.

Overall, Baird's thesis in favor of the stock remains more compelling than ever, the analysts said. "We believe the U.S. mortgage system benefits from an industry-standard risk measure, viable alternatives are limited and switching costs/risks exist," they wrote.

Also on Wednesday, Wells Fargo analysts reiterated an Overweight rating and $2,600 target price on the shares. The bank noted that the industry was still heavily reliant on FICO scores, saying the stock represented an "especially attractive opportunity" given the pullback.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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May 28, 2025 16:49 ET (20:49 GMT)

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