How to Value Fannie Mae Stock

With shares of Fannie Mae (NASDAQOTCBB: FNMA  ) having exploded upward by nearly 600% since last year, many investors are wondering if this is a sound investment and what will happen once the government no longer holds conservatorship over the company. In this video, Motley Fool financial analysts Matt Koppenheffer and David Hanson discuss the stock and the future of Fannie Mae. Matt gives us some possible ways to value the company at the moment, gives us some insight into why the stock has exploded recently, and points out that once that conservatorship ends, the catalyst for this stock's growth could take a sharp turn in the other direction.

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Read/Post Comments (12) | Recommend This Article (7)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 19, 2013, at 7:22 PM, winbig2014 wrote:

    Some interesting points... however before the crisis all the same external factors would have been the same, and the market valued FNMA at what? er, $95 at it's highest... it's not like this is a new company and we have no idea what it will be valued at once released from conservator-ship.

  • Report this Comment On June 19, 2013, at 7:47 PM, consAREidiots wrote:

    transcripts would be useful.

    i have no time for your videos.

  • Report this Comment On June 19, 2013, at 8:06 PM, TMFKopp wrote:

    @winbig2014

    Bear in mind that in 2006 there were 972 million (diluted) shares outstanding, while in 2012 there were 5.9 billion shares.

    Matt

  • Report this Comment On June 19, 2013, at 10:18 PM, Dangremaus wrote:

    I agree with winbig--these are not new companies just coming onto the market, nor are they small cap stocks. They happen to be in the penny stock category because they lost their ability to be listed on the NYSE. These guys keep regarding Fannie and Freddie as a lost cause or high speculation bet at the most.

    The real question is, where do we think the stock will go once the next quarterly earnings report is sent out to shareholders? I'm betting it'll hit a new daily moving average (DMA) at $3-4.

  • Report this Comment On June 19, 2013, at 11:12 PM, Caludio wrote:

    After reading the class action complaint filed by Hagens Berman in the Federal Court I think that sooner or later the Court will stop the payments from Fannie and Freddie to the Treasury.

    On that day the shares will rocket up big time.

    Estimate of value by DCF

    The last Free Cash Flow reported by Fannie is

    $31B , lets be extremly conservative, lets go back to the FCF of 2006 that was $14B and use it as initial CF, annual growth rate of 5%, terminal growth rate 3%, discount rate 8%, and to be even more conservative lets use the fully diluted shares 5.7 billions (including the warrants that the government maybe will not be allowed to exercise after it gets paid) . The resultant intrinsic value per share is $59.28. Today's price is $1.90

    You make the maths ....

  • Report this Comment On June 19, 2013, at 11:17 PM, Gaubel wrote:

    Your evaluation scenario is unrealistic. You provide no numbers even though standard financial statements are readily avaliable. Your criteria, like payment of post-conservatorship taxes are important for valuation in a company that does not pay taxes, yet no estimates were given when such can estimates can be made from available data. The same goes for the rest. Where are the numbers to back up opinion?

    In short, your analysis was not an analysis at all but a factless, admittedly biased, personal opinion that has little or no value to a potential investor. I find this sort of off-handed, flippant presentation off putting. I am not an idiot or ignorant but this presentation seems to assume that many people in your audience are. Climb down from the high hobby horse, mature, and elevate the level of your work. It will do you and others a world of good.

  • Report this Comment On June 19, 2013, at 11:20 PM, MadStabber wrote:

    Wow, Matt figured out how the secondary mortgage market works! Here's a Foolish observation, FNMA was $30 a few years ago, I'm out at $10 in a year.

  • Report this Comment On June 20, 2013, at 7:26 AM, italomi wrote:

    uhmmmm...después del resultado de este balance que se viene a Jun. Fanny Mae trepara a 10 $

  • Report this Comment On June 20, 2013, at 8:50 AM, Caludio wrote:

    Dear Mr Gaubel

    Are you talking about my comment or about the video presentation of Motley fool?

    If you are addressing to me, I am sorry that my analisys got you so upset. if this the case I am ready to show you where are the numbers that back up my opinion. And later on , if you still think that I am wrong ( that is possible) I will appreciate that you teach me why I am wrong. I am willing to learn.

    Please give me an answer. Thank you!

  • Report this Comment On June 21, 2013, at 3:05 AM, Gaubel wrote:

    Matt,

    It was the video presentation. Please provide the numbers to back up your opinion. Then, we can ascertain clearly the veracity of your opinion.

    As for being upset, no, not upset. A more appropriate term is disobliged.

  • Report this Comment On June 21, 2013, at 3:26 AM, Gaubel wrote:

    Matt,

    You say to @winbig2014

    "Bear in mind that in 2006 there were 972 million (diluted) shares outstanding, while in 2012 there were 5.9 billion shares."

    The number 5.9 billion is incorrect on two accounts. First, the number is simply incorrect. According to the Form 10-Q1 - 2013, the weighted-average common shares outstanding, basic and diluted, is 5.762 billion.

    Second, that number includes 4.6 billion shares that WOULD be available IF the 79.9% warrant on the common shares was exercised by the US Treasury.

    The warrant has not been exercised.

    Here is the note that explains:

    ~~~~~~~~~~~~~~~~~~~~~~

    "(2) Includes 4.6 billion for the three months ended March 31, 2013 and 2012 of weighted-average shares of common stock that would be issued upon the full exercise of the warrant issued to Treasury from the date the warrant was issued through March 31, 2013." page 114.

    ~~~~~~~~~~~~~~~~~~~~~~

    "that would be issued." Was this overlooked or did you go with the Yahoo numbers or mispeak or...

    If the warrant has not been exercised how can that number be quoted as actual shares outstanding? That actual number of common shares outstanding reported on the consolidated balance sheet is 1,158,077,970.

  • Report this Comment On June 25, 2013, at 10:58 AM, Gaubel wrote:

    @Matt

    Matt said,

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    "If you are addressing to me, I am sorry that my analisys got you so upset. if this the case I am ready to show you where are the numbers that back up my opinion. And later on , if you still think that I am wrong ( that is possible) I will appreciate that you teach me why I am wrong. I am willing to learn.

    Please give me an answer. Thank you!"

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    I gave you answer Matt above.

    I have waited patiently since last Friday, June 21st and you have not fulfilled your stated promise.

    This then is the observable standard of the Motley Fool commentaors: Misinformation, biased use of data, selective use of sources, unprofessional behavior, and dissembling.

    You have proven the above statement to be factual by your displayed speech, responses, and comments with of the above here and elsewhere as anyone can plainly surmise.

    Your choice to correct this unbecoming status or not.

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