XII
Detailed Valuation Scenarios
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VALUATION SCENARIOS - DISCOUNTED CASH FLOW (DCF) ANALYSIS
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📊 LLM-DETERMINED DCF PARAMETERS FOR FICO
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FICO is a near-monopoly in credit scoring (~90% of US lending decisions) with exceptional pricing power, 47% operating margins, and 58% ROIC. Valuation must balance extraordinary moat durability against limited remaining margin expansion room, significant leverage ($3.5B debt vs negligible equity), and potential regulatory headwinds on score pricing. Forward FCF growth will be driven primarily by revenue growth (pricing + volume) rather than the margin expansion that fueled historical outperformance.
Scenario Parameters (LLM-selected based on fundamental analysis):
🔻 Bear: 6.0% growth, 11.0% WACC, 2.0% terminal
→ Regulatory pressure from CFPB constrains score pricing power, VantageScore gains traction with lenders, and operating margins compress slightly from 47% peak. Revenue growth decelerates to mid-single digits as pricing tailwinds fade, with elevated WACC reflecting $3.5B debt load and regulatory uncertainty.
⚖️ Base: 10.0% growth, 9.5% WACC, 2.5% terminal
→ Continued moderate pricing increases on scores, steady software platform growth, and stable margins near current levels drive ~8-10% revenue growth translating to ~10% FCF growth. Monopoly-quality business warrants moderate discount rate despite meaningful leverage.
🔺 Bull: 13.0% growth, 8.5% WACC, 3.0% terminal
→ Aggressive score repricing continues without regulatory intervention, software platform accelerates with AI/analytics upsell, and international expansion opens new scoring markets. Margins expand modestly toward 50%+ as software mix increases, justifying a lower WACC for this monopoly-caliber franchise.
Base FCF: FICO is a capital-light software company, not a financial/lending company. OCF minus CapEx ($0.77B) is the appropriate FCF measure and closely tracks reported FCF ($0.74B). Current year FCF appears representative of normalized earning power with no obvious anomalies.
Stock: FICO
Current Price: $995.00
Shares Outstanding: 0.02B (23,709,047 shares)
Base Year FCF (FY 2025): $0.7B (from financial statements)
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BEAR CASE (Probability: 25%)
Conservative: Below-trend growth, elevated risk premium, modest recession impact
ASSUMPTIONS:
• FCF Growth Rate (Years 1-10): 6.0%
• Discount Rate (WACC): 11.0%
• Terminal Growth Rate: 2.0%
10-YEAR FCF PROJECTION:
Year FCF ($M) PV Factor PV of FCF ($M)
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1 $ 779,193,280 0.9009 $ 701,975,928
2 $ 825,944,877 0.8116 $ 670,355,391
3 $ 875,501,569 0.7312 $ 640,159,202
4 $ 928,031,664 0.6587 $ 611,323,202
5 $ 983,713,563 0.5935 $ 583,786,121
6 $1,042,736,377 0.5346 $ 557,489,449
7 $1,105,300,560 0.4817 $ 532,377,311
8 $1,171,618,593 0.4339 $ 508,396,351
9 $1,241,915,709 0.3909 $ 485,495,615
10 $1,316,430,652 0.3522 $ 463,626,443
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Total PV of 10-Year FCF: $5,754,985,011
TERMINAL VALUE:
• Year 11 FCF: $1,342,759,265
• Terminal Value: $14,919,547,384
• PV of Terminal Value: $5,254,433,019
VALUATION SUMMARY:
• Enterprise Value: $11.0B
• Less: Total Debt: $3.5B
• Plus: Cash & Equivalents: $0.1B
• Equity Value: $7.6B
• Shares Outstanding: 0.02B
• Intrinsic Value per Share: $320.79
• Current Price: $995.00
• Upside/Downside: -67.8%
• Margin of Safety: -210.2%
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BASE CASE (Probability: 50%)
Balanced: Sustainable growth trajectory, market-appropriate discount rate, realistic perpetuity assumptions
ASSUMPTIONS:
• FCF Growth Rate (Years 1-10): 10.0%
• Discount Rate (WACC): 9.5%
• Terminal Growth Rate: 2.5%
10-YEAR FCF PROJECTION:
Year FCF ($M) PV Factor PV of FCF ($M)
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1 $ 808,596,800 0.9132 $ 738,444,566
2 $ 889,456,480 0.8340 $ 741,816,459
3 $ 978,402,128 0.7617 $ 745,203,749
4 $1,076,242,341 0.6956 $ 748,606,506
5 $1,183,866,575 0.6352 $ 752,024,800
6 $1,302,253,232 0.5801 $ 755,458,704
7 $1,432,478,556 0.5298 $ 758,908,287
8 $1,575,726,411 0.4838 $ 762,373,621
9 $1,733,299,052 0.4418 $ 765,854,779
10 $1,906,628,958 0.4035 $ 769,351,833
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Total PV of 10-Year FCF: $7,538,043,305
TERMINAL VALUE:
• Year 11 FCF: $1,954,294,681
• Terminal Value: $27,918,495,449
• PV of Terminal Value: $11,265,508,986
VALUATION SUMMARY:
• Enterprise Value: $18.8B
• Less: Total Debt: $3.5B
• Plus: Cash & Equivalents: $0.1B
• Equity Value: $15.4B
• Shares Outstanding: 0.02B
• Intrinsic Value per Share: $649.53
• Current Price: $995.00
• Upside/Downside: -34.7%
• Margin of Safety: -53.2%
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BULL CASE (Probability: 25%)
Optimistic: Strong execution, market share gains, operating leverage, sustained competitive advantages
ASSUMPTIONS:
• FCF Growth Rate (Years 1-10): 13.0%
• Discount Rate (WACC): 8.5%
• Terminal Growth Rate: 3.0%
10-YEAR FCF PROJECTION:
Year FCF ($M) PV Factor PV of FCF ($M)
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1 $ 830,649,440 0.9217 $ 765,575,521
2 $ 938,633,867 0.8495 $ 797,327,501
3 $1,060,656,270 0.7829 $ 830,396,383
4 $1,198,541,585 0.7216 $ 864,836,786
5 $1,354,351,991 0.6650 $ 900,705,593
6 $1,530,417,750 0.6129 $ 938,062,046
7 $1,729,372,057 0.5649 $ 976,967,846
8 $1,954,190,425 0.5207 $1,017,487,249
9 $2,208,235,180 0.4799 $1,059,687,181
10 $2,495,305,754 0.4423 $1,103,637,341
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Total PV of 10-Year FCF: $9,254,683,448
TERMINAL VALUE:
• Year 11 FCF: $2,570,164,926
• Terminal Value: $46,730,271,384
• PV of Terminal Value: $20,668,117,474
VALUATION SUMMARY:
• Enterprise Value: $29.9B
• Less: Total Debt: $3.5B
• Plus: Cash & Equivalents: $0.1B
• Equity Value: $26.5B
• Shares Outstanding: 0.02B
• Intrinsic Value per Share: $1118.52
• Current Price: $995.00
• Upside/Downside: +12.4%
• Margin of Safety: 11.0%
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SENSITIVITY ANALYSIS - Intrinsic Value per Share
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How intrinsic value changes with different growth and discount rates:
Growth → 3% 5% 8% 10% 12% 15%
WACC ↓ ------------------------------------------------------------------
8% $ 457↓ $ 559↓ $ 744↓ $ 894↓ $ 1068 $ 1384↑
9% $ 364↓ $ 447↓ $ 597↓ $ 718↓ $ 859↓ $ 1113
10% $ 296↓ $ 365↓ $ 490↓ $ 590↓ $ 707↓ $ 916
11% $ 244↓ $ 302↓ $ 408↓ $ 493↓ $ 591↓ $ 768↓
12% $ 202↓ $ 253↓ $ 344↓ $ 417↓ $ 501↓ $ 652↓
Current Price: $995.00
Base FCF: $0.7B
Terminal Growth: 2.5% (constant)
Legend: ↑ = 30%+ upside | ↓ = 10%+ downside
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REVERSE DCF — WHAT IS THE MARKET PRICING IN?
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Using IDENTICAL assumptions as Base Case DCF:
• WACC (Discount Rate): 9.5%
• Terminal Growth Rate: 2.5%
• Base FCF: $0.7B
• Current Price: $995.00
→ Market-Implied FCF Growth Rate: 14.9%
→ Base Case uses: 10.0% growth → $649.53/share
📊 Market is pricing in HIGHER growth (14.9%) than our Base Case (10.0%)
→ Market expects more growth than our analysis supports — potential downside risk
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PROBABILITY-WEIGHTED VALUATION
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Bear Case (320.79) × 25% = $80.20
Base Case (649.53) × 50% = $324.76
Bull Case (1118.52) × 25% = $279.63
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Weighted Average Intrinsic Value: $684.59
Current Price: $995.00
Upside/Downside: -31.2%
Margin of Safety: -45.3%
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