BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F Annual Dividend Rate BUY BUY RATING SINCE 04/08/2011 TARGET PRICE $180.12 BUSINESS DESCRIPTION Fair Isaac Corporation develops analytic, software, and data management products and services that enable businesses to automate, enhance, and connect decisions. STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change 8.47 35.30 28.87 GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues 7.37 5.76 5.71 Net Income 24.73 17.18 10.57 EPS 25.00 17.10 13.16 RETURN ON EQUITY (%) Ind Avg S&P 500 Q4 2017 30.06 12.87 13.41 Q4 2016 24.49 15.25 11.79 Q4 2015 19.79 10.60 12.91 P/E COMPARISON Sector: Technology Sub-Industry: Application Software Source: S&P Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years Rating History BUY Volume in Millions 2015 2016 2017 COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History TARGET PRICE $180.12 200 180 160 140 120 100 80 3 0 38.51 EPS ALYSIS¹ ($) 46.14 Ind Avg 24.86 S&P 500 RECOMMENDATION We rate () a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and notable return on equity. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated. HIGHLIGHTS Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 35.30% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year. Q1 0.43 Q2 0.58 Q3 0.62 2015 Q4 1.03 Q1 0.59 Q2 0.72 Q3 1.08 2016 = not available NM = not meaningful Q4 1.00 Q1 1.16 Q2 0.78 Q3 0.78 2017 1 Compustat fiscal year convention is used for all fundamental data items. Q4 1.25 has improved earnings per share by 25.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, FAIR ISAAC CORP increased its bottom line by earning $3.97 versus $3.39 in the prior year. This year, the market expects an improvement in earnings ($5.46 versus $3.97). The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Software industry average. The net income increased by 24.7% when compared to the same quarter one year prior, going from $32.10 million to $40.04 million. Despite its growing revenue, the company underperformed as compared with the industry average of 12.5%. Since the same quarter one year prior, revenues slightly increased by 7.4%. Growth in the company's revenue appears to have helped boost the earnings per share. Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Software industry and the overall market, 's return on equity significantly exceeds that of both the industry average and the S&P 500. PAGE 1
PEER GROUP ALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) 0% 40% ZEN UNFAVORABLE -20% TEAM PAYC RNG EBITDA Margin (TTM) PEGA RP FAVORABLE NICE BLKB AZPN NUAN 50% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $3.1 Billion and $5.1 Billion. Companies with or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) 0% 40% UNFAVORABLE -4% ZEN Earnings Yield (TTM) NUAN TEAM PAYC RNG RP FAVORABLE NICE PEGA BLKB AZPN Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between 1.7% and 38.3%. Companies with or NM values do not appear. 4% INDUSTRY ALYSIS The US software industry is characterized by growth, innovation and technological advancements. The business remains knowledge intensive and market structure is influenced by ownership of intellectual property. Technology and product innovation shape business models in a rapidly changing environment. The industry can be divided into three main categories: systems software, programming software, and application software. The industry landscape has seen radical change in recent years due to the growth of mass markets for packaged software. Software development has witnessed rapid evolution over the past few decades with projects increasing in size and complexity as the available computer hardware has dramatically improved in both processing speed and storage size. The number of patents being issued across the industry has recently surged. Ownership of intellectual property is a key driver of growth and the patent system plays a vital role in the development of the industry. However, piracy remains a pressing issue as copyright infringement and illegal reproduction and transfer of licensed software is widespread. The software industry is not immune to the global economy. The return to positive slow growth will positively impact all industries and enhance new investments, which could bolster demand for services and add to sales growth in the upcoming quarters. The need to lower costs has triggered global capabilities to evolve in China and India. India, for instance, has emerged as the number two software talent pool worldwide, capturing more than a quarter of the global outsourcing market. The industry is currently positioned favorably going forward. PEER GROUP: Software Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) 152.89 4,585 38.51 932.17 128.26 NICE NICE LTD 84.38 5,127 55.51 1,263.78 90.00 TEAM ATLASSIAN CORP PLC 52.43 5,117 NM 676.97-53.86 BLKB BLACKBAUD INC 100.67 4,841 92.36 769.63 52.51 AZPN ASPEN TECHNOLOGY INC 66.74 4,841 31.04 485.67 161.95 PAYC PAYCOM SOFTWARE INC 81.43 4,744 76.82 406.83 62.54 NUAN NUANCE COMMUNICATIONS INC 14.44 4,167 NM 1,979.66-67.10 PEGA PEGASYSTEMS INC 52.35 4,076 84.44 803.64 50.48 RP REALPAGE INC 44.10 3,655 126.00 632.35 28.60 ZEN ZENDESK INC 34.38 3,490 NM 395.69-108.54 RNG RINGCENTRAL INC 47.20 3,065 NM 465.49-27.00 The peer group comparison is based on Major Application Software companies of comparable size. PAGE 2
Annual Dividend Rate COMPANY DESCRIPTION Fair Isaac Corporation develops analytic, software, and data management products and services that enable businesses to automate, enhance, and connect decisions. The company offers analytical solutions, credit scoring, and credit account management products and services to banks, credit reporting agencies, credit card processing agencies, insurers, retailers, healthcare organizations, and public agencies. It operates through three segments: Applications, Scores, and Decision Management Software. The Applications segment offers pre-configured decision management applications designed for various business problem or process, such as marketing, account origination, customer management, fraud, collections, and insurance claims management, as well as associated professional services. The Scores segment provides business-to-business scoring solutions and services, including my solutions for consumers that give clients access to analytics to be integrated into their transaction streams and decision-making processes, as well as associated professional services. The Decision Management Software segment offers analytic and decision management software tools, as well as professional services. The company offers a portfolio of applications, tools, and services in the cloud to clients through its Analytic Cloud, Decision Management Suite, and Decision Management Platform. Fair Isaac Corporation markets its products and services primarily through its direct sales organization; indirect channels; subsidiary sales organizations; and resellers and independent distributors, as well as online. The company was formerly known as Fair Isaac & Company, Inc. and changed its name to Fair Isaac Corporation in July 1992. Fair Isaac Corporation was founded in 1956 and is headquartered in San Jose, California. 181 Metro Drive, Suite 700 San Jose, CA 95110 USA Phone: 408-535-1500 http://www.fico.com STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 5.0 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 90% of the stocks we rate. Total Return 4.5 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 80% of the companies we cover. Efficiency 5.0 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 90% of the companies we review. Price volatility 5.0 out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 90% of the stocks we monitor. Solvency 3.0 out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 50% of the companies we analyze. Income 0.5 out of 5 stars Measures dividend yield and payouts to shareholders. This company pays no dividends. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. PAGE 3
Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial FINCIAL ALYSIS 's gross profit margin for the fourth quarter of its fiscal year 2017 is essentially unchanged when compared to the same period a year ago. The company has grown its sales and net income during the past quarter when compared with the same quarter a year ago, and although its growth in net income has outpaced the industry average, its revenue growth has not. has liquidity. Currently, the Quick Ratio is 0.84 which shows a lack of ability to cover short-term cash needs. The company's liquidity has decreased from the same period last year. 1.10 Q1 FY17 5.46 E 2018(E) 6.46 E 2019(E) During the same period, stockholders' equity ("net worth") has remained virtually unchanged only decreasing by 4.54% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the future. INCOME STATEMENT Net Sales ($mil) 253.21 235.82 EBITDA ($mil) 69.59 53.42 EBIT ($mil) 60.80 44.92 Net Income ($mil) 40.04 32.10 STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.thestreetratings.com. BALANCE SHEET Cash & Equiv. ($mil) 105.62 75.93 Total Assets ($mil) 1,255.62 1,221.05 Total Debt ($mil) 604.80 571.00 Equity ($mil) 426.54 446.83 PROFITABILITY Gross Profit Margin 72.70% 70.66% EBITDA Margin 27.48% 22.65% Operating Margin 24.01% 19.05% Sales Turnover 0.74 0.72 Return on Assets 10.21% 8.96% Return on Equity 30.06% 24.49% DEBT Current Ratio 0.95 1.09 Debt/Capital 0.59 0.56 Interest Expense 6.31 Interest Coverage 7.11 SHARE DATA Shares outstanding (mil) 31 31 Div / share 0.00 0.02 EPS 1.25 1.00 Book value / share 13.88 14.44 Institutional Own % Avg Daily Volume 169,233 170,218 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. PAGE 4
RATINGS HISTORY Our rating for has not changed since 4/8/2011. As of 11/16/2017, the stock was trading at a price of which is 1.5% below its 52-week high of $155.24 and 38.1% above its 52-week low of $110.73. 2 Year Chart BUY: $87.56 2016 $160 $140 $120 $100 MOST RECENT RATINGS CHANGES Date Price Action From To 11/16/15 $87.56 No Change Buy Buy Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS (as of 11/16/2017) 43.95% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 30.76% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 25.29% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com Research Contact: 212-321-5381 Sales Contact: 866-321-8726 VALUATION BUY. 's P/E ratio indicates a discount compared to an average of 46.14 for the Software industry and a significant premium compared to the S&P 500 average of 24.86. Conducting a second comparison, its price-to-book ratio of 11.01 indicates a significant premium versus the S&P 500 average of 3.16 and a premium versus the industry average of 9.62. The price-to-sales ratio is well above the S&P 500 average, but well below the industry average. The valuation analysis reveals that, seems to be trading at a discount to investment alternatives within the industry. Price/Earnings 38.51 Peers 46.14 Discount. A lower P/E ratio than its peers can signify a less expensive stock or lower growth expectations. is trading at a discount to its peers. Price/Projected Earnings 23.67 Peers 35.14 Discount. A lower price-to-projected earnings ratio than its peers can signify a less expensive stock or lower future growth expectations. is trading at a discount to its peers. Price/Book 11.01 Peers 9.62 Premium. A higher price-to-book ratio makes a stock less attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a premium to its peers. Price/Sales 5.04 Peers 7.37 Discount. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a significant discount to its industry on this measurement. DISCLAIMER: Price/CashFlow 20.82 Peers 22.36 Average. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a valuation on par to its peers. Price to Earnings/Growth 1.04 Peers 0.95 Average. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. trades at a valuation on par to its peers. Earnings Growth lower higher 17.10 Peers 25.21 Lower. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. However, is expected to significantly trail its peers on the basis of its earnings growth rate. Sales Growth lower higher 5.76 Peers 12.57 Lower. A sales growth rate that trails the industry implies that a company is losing market share. significantly trails its peers on the basis of sales growth The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. PAGE 5