FICO Missed Its Chance to Raise Prices, and the Stock Plunges — Barrons.com

What happened

Fair Isaac kept its mortgage credit-score price at $10 for lenders in its new Preferred Program, which bundles its traditional FICO score with FICO Score 10T. Wells Fargo downgraded the stock, and FICO shares fell 6.9% to $758 on Monday.

Confirmed

Global impact / market context

Holding the $10 price steady means FICO gives up a chance to earn more profit on each mortgage credit check, which is a key driver of earnings growth. That weaker profit outlook led Wells Fargo to downgrade the stock, helping push shares down 6.9% to $758.

Analyst inference

FICO is defending its share of the mortgage credit-score market against VantageScore, whose price for its 4.0 score is less than half of FICO's $10 charge. FICO stock has fallen 54% this year, putting it on track for its worst annual performance on record, according to Dow Jones Market Data.

Analyst inference

What to watch

1. Wells Fargo downgraded FICO to Equal Weight from Overweight and cut its price target to $735 from $800, which implies a roughly 10% decline from Friday's closing price of $815.31. Confirmed
2. FICO's Preferred Program bundles its traditional score with FICO Score 10T and holds the $10 price, but lenders must commit to using FICO scores for all applicable credit checks. Proposed
3. Watch whether lenders join FICO's Preferred Program, because their commitment to use FICO for all applicable credit checks could protect FICO's revenue per lender against VantageScore, a joint venture of Equifax, TransUnion, and Experian. Analyst inference

Evidence

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