FAIR ISAAC CORP. $49.29 (New York symbol FICO; TSINetwork Rating: Average) (415-472-2211; www.fairisaac.com; Shares outstanding: 35.9 million; Market cap: $1.8 billion; Dividend yield: 0.2%) makes FICO Scores, the computer program that dominates the market for software that businesses use to evaluate customer creditworthiness. The company is also profiting by selling software that helps credit card issuers control fraud and analyze their clients’ spending patterns.
In its fiscal 2013 second quarter, which ended March 31, 2013, Fair Isaac’s earnings per share before one-time items rose 4.4% from a year ago, to $0.69 from $0.66. Revenue rose 12.4%, to $179.3 million from $159.5 million.
Fair Isaac continues to spend around 8% of its revenue on research. That lets it keep producing innovative new products that help it stay ahead of its competitors. It’s also building its expertise by purchasing other technology firms. That adds risk, but most of these are small purchases that it can easily integrate into its current businesses.
For instance, it recently bought Infoglide Software Corp., whose programs help businesses and government agencies detect identity theft, money laundering and other forms of fraud. For example, Infoglide’s technology can quickly check to see if a witness to an insurance claim has a connection to a known fraudster.
The company’s balance sheet is sound: it holds cash and securities of $131.2 million, or $3.70 a share. Its long-term debt of $455.0 million is a manageable 25% of its market cap.
For all of 2013, Fair Isaac should earn $2.80 a share. The stock trades at 17.6 times that figure. That’s reasonable for a company with strong growth prospects and high research spending.
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