Fair Isaac CorporationFICONYSE

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $991.90 per share(market-calibrated)

-29.5%

Upside to Fair Value

Current

$1,407.54

Pure Model

$947.83

Fair Value

$991.90

Bull Case

$1,351.67

Bear Case

$632.13

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

7.06%

Calibrated Growth

4.58%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $947.83.

What's Driving This Ratingfor FICO

✓

CapEx already efficient

CapEx at 0.53% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 42.33% — below the sector mature average of 46.45%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.1B (42.33% margin).

↑

Strong near-term revenue growth

Analyst consensus projects 24.95% revenue growth in Year 1, fading to 7.71% by Year 5 and 3.75% by Year 10. Revenue reaches $4.9B by Year 10 (vs $2.0B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $705.69/share (17.9x terminal FCF) while exit multiple gives $1,189.97/share (35.0x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $1,407.54, the market implies 7.06% perpetual growth — 331bps above the model's 3.75%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 79.89% indicates efficient cash generation. FCF reaches $1.7B by Year 10 (34.54% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.27

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)10.21%

Cost of Debt

Pre-tax Cost of Debt2.89%

Tax Rate18.77%

After-tax Cost of Debt2.35%

Equity Weight (E/V)91.73%

Debt Weight (D/V)8.27%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (91.73% × 10.21%) + (8.27% × 2.35%)

= 9.56%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$2.5B	$3.3B	$3.8B	$4.3B	$4.9B
EBIT	$1.1B	$1.4B	$1.6B	$1.8B	$2.1B
Tax	$198M	$261M	$302M	$343M	$391M
NOPAT	$855M	$1.1B	$1.3B	$1.5B	$1.7B
+ Depreciation	$22M	$30M	$34M	$39M	$44M
- Capex	$13M	$17M	$20M	$23M	$26M
- Δ NWC	$30M	$22M	$17M	$15M	$11M
Free Cash Flow	$834M	$1.1B	$1.3B	$1.5B	$1.7B
Discount Factor	0.913	0.760	0.633	0.528	0.401
Present Value	$762M	$852M	$826M	$783M	$683M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.7B

Terminal Growth Rate3.75%

WACC9.56%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$30.4B

PV of Terminal Value$12.2B

Exit Multiple Method

Year 10 EBITDA$2.1B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$59.6B

PV of Terminal Value$23.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$7.9B

PV of Terminal Value$12.2B

Enterprise Value$20.0B

(-) Net Debt$2.9B

Equity Value$17.1B

Shares Outstanding24M

Price per Share$705.69

Exit Multiple Method

PV of Projected FCFs$7.9B

PV of Terminal Value$23.9B

Enterprise Value$31.8B

(-) Net Debt$2.9B

Equity Value$28.8B

Shares Outstanding24M

Price per Share$1,189.97

Pure Model Fair Value

$947.83

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
7.56%	$1,192.07	$1,236.00	$1,291.46	$1,363.68	$1,461.59
8.56%	$1,033.19	$1,060.35	$1,093.15	$1,133.57	$1,184.60
9.56%	$908.83	$926.79	$947.83	$972.84	$1,003.05
10.56%	$807.33	$819.79	$834.07	$850.62	$870.01
11.56%	$722.12	$731.08	$741.18	$752.66	$765.83

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$632.13

-55.1% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.59

Base Case

$947.83

-32.7% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.27

Bull Case

$1,351.67

-4.0% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.08

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth24.95%

Year 3 Revenue Growth12.48%

Year 5 Revenue Growth7.71%

Year 7 Revenue Growth6.12%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin42.33%

Terminal EBIT Margin46.45%

Tax Rate18.77%

Historical Capex / Rev0.53%

NWC / Revenue6.10%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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