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Investing.com - Wells Fargo (NYSE:WFC) lowered its price target on Fair Isaac (NYSE:FICO) to $2,300 from $2,600 while maintaining an Overweight rating, citing concerns about potential regulatory changes in mortgage credit scoring. The stock has already taken a significant hit, dropping over 7.5% in the past week. According to InvestingPro data, analyst targets for FICO range from $1,364 to $3,700, reflecting diverse views on the company’s prospects.
The price target adjustment follows a July 8 announcement that government-sponsored enterprises (GSEs) will accept VantageScore 4.0, though it remains unclear whether the Federal Housing Finance Agency (FHFA) has removed the FICO mandate for conforming mortgages or moved to a "FICO or VantageScore" approach. Despite market uncertainties, InvestingPro analysis shows FICO maintains impressive gross profit margins of nearly 81% and operates with moderate debt levels.
Wells Fargo noted that even if lenders gain optionality between scoring models, FICO remains deeply embedded in existing lending systems, and shifting processes would be time-consuming and costly for lenders, potentially limiting immediate changes in market share.
The firm expressed concern that Fair Isaac will likely be more measured with its mortgage score pricing due to increased regulatory scrutiny, leading Wells Fargo to model a more modest price increase from $4.95 to approximately $6.50 next year.
Credit bureaus Equifax (NYSE:EFX) and TransUnion (NYSE:TRU) could benefit from these developments as they are part of the VantageScore joint venture, potentially gaining from increased VantageScore usage, though Wells Fargo maintained its price targets and estimates for these companies.
In other recent news, Fair Isaac Corporation has announced plans to introduce new credit scoring models incorporating buy now, pay later (BNPL) loan data, set to launch in Fall 2025. This marks a significant development as FICO aims to provide lenders with a more comprehensive understanding of consumers’ repayment behaviors. Meanwhile, the Federal Housing Finance Agency (FHFA) has allowed mortgage lenders to use VantageScore 4.0, which could pose increased competition for FICO in the mortgage credit scoring market. Despite this, both Goldman Sachs and Raymond (NSE:RYMD) James have maintained positive ratings for Fair Isaac, citing the company’s strong market position and the continued preference for FICO scores in the mortgage-backed security ecosystem.
Additionally, Baird has upgraded Fair Isaac’s stock from Neutral to Outperform, though it lowered the price target to $1,900, reflecting confidence in the company’s resilience despite recent regulatory challenges. Concerns over potential changes in the mortgage credit scoring landscape have emerged, particularly regarding the possible privatization of Government-Sponsored Enterprises (GSEs) like Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC). RBC Capital remains optimistic about Fair Isaac’s prospects, suggesting that the potential regulatory shifts may not materially impact the company. Investors continue to monitor these developments closely, especially considering the implications for Fair Isaac’s role in the credit scoring industry.
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