Federal National Mortgage Association (FNMA) Is Back In Focus, What Are Investors Watching?

Federal National Mortgage Association (FNMA) is back in focus after prominent investor Michael Burry publicly flagged potential heavy dilution for common shareholders, while at the same time rotating his own exposure from common stock into junior preferred shares.

Recent trading has reflected those concerns. At a share price of $3.47, Federal National Mortgage Association has seen its 30 day share price return fall 39.5% and its year to date share price return decline 68.5%. However, the 3 year total shareholder return is still very large at about 4x.

Spot opportunities with different risk profiles to Federal National Mortgage Association by checking a curated list of financially robust candidates in the list of solid balance sheet and fundamentals (25 results).

The recent slide in Federal National Mortgage Association shares tempts bottom fishers, while others prefer to wait for clarity on dilution and policy. The next step is to determine what the current valuation actually reflects.

Most Popular Narrative: 67% Undervalued

Federal National Mortgage Association is trading at $3.47, while the most followed narrative anchors fair value at $10.50. The gap investors are debating is large.

The large $4.1 trillion guaranty book and role as the largest guarantor of U.S. residential mortgage debt put the company in a position to benefit as housing finance demand trends support sustained guaranty fee revenue and earnings.

Ongoing repricing of the guaranty book, with higher average guaranty fees in single family, supports the potential for a firmer net interest margin and can be a tailwind for net revenues.

See why 3 investors see Federal National Mortgage Association as 67% undervalued.

Result: Fair Value of $10.50 (UNDERVALUED)

Still, the bullish story around Federal National Mortgage Association collides with two big swing factors: unresolved conservatorship timelines and rising multifamily credit stress that could reshape returns.

Find out about the key risks to this Federal National Mortgage Association narrative.

Another View: Federal National Mortgage Association Through Earnings Multiples

Federal National Mortgage Association looks very different once the focus shifts to its P/E ratio. At 87.7x, the stock trades far above the US Diversified Financial industry on 16.9x and peers on 22.6x, and even further away from a fair ratio of 1.5x that the market could move toward over time. That sort of gap can reward investors if sentiment stays optimistic, but it also raises the risk that a reset in expectations hits the price much harder.

See what the numbers say about this price in our valuation breakdown See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

Big valuation gaps like this often divide opinion, so if you care about Federal National Mortgage Association it makes sense to check the data quickly and decide where you stand. To see both sides of the argument in one place, take a look at the 2 key rewards and 2 important warning signs.

Looking for more investment ideas beyond Federal National Mortgage Association?

If Federal National Mortgage Association has you thinking harder about risk and reward, broaden your watchlist with a few focused screens that target different styles of opportunity.

• Target future potential by scanning a curated set of companies that our process flags as 20 high quality undiscovered gems.
• Prioritize defense first by reviewing a pool of 31 resilient stocks with low risk scores that may better align with a capital preservation mindset.
• Hunt for price and quality together by checking a focused group of 30 high quality undervalued stocks that already pass key fundamental filters.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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