Fair Isaac (FICO) has "huge potential for outsized earnings growth" due to the inelasticity of demand for product and current value gap, BofA Securities said in a note on Monday.

The brokerage said that the lenders, which use FICO score, are not in principle the payors of the FICO score, meaning they don't have any incentive to oppose rate hikes or switch to any other service in order to measure consumer creditworthiness. This makes the demand for the company's product "perfectly inelastic."

BofA also said after meeting with FICO management and chief executive officer at FICO World held between May 6 and May 9, "our conviction in the duration of growth has increased considerably."

The brokerage said three catalysts for the company's software growth would be inclusion of Falcon Fraud to its platform, FICO marketplace launching and its new AI model trained on financial data.

After attending the FICO World, "we walked away with a greater understanding of FICO platform's capabilities and more importantly its ability to become the backbone of consumer finance," BofA added.

The brokerage mentioned that it is "impressed" by the CEO's views on capital allocation. The company's significant free cash flow ($607B in 24) returned via buybacks ($822B in 24) is driving a public [leveraged buyout]."

BofA said its forecasts in DCF reflects continued high growth with multiple stages over 15 years due to the company's pricing power in Scores, rising operating leverage, normalizing lending volumes and the opportunity of the software business.

The brokerage reiterated buy rating on the company and raised the price target to $3,700 from $2,800.

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