Valuing Freddie Mac And Fannie Mae’s Common And Preferred Stocks
Seeking Alpha - June 16, 2015 - June 17, 2015
By Wayne Olson
Freddie Mac’s (OTCQB: OTCQB:FMCC) expected near-term earnings of roughly $2.50 per share would imply a common stock valuation of $25.00 per share if a price/earnings ratio of 10 times is assumed. For Fannie Mae (OTCQB:OTCQB:FNMA), expected near-term earnings of roughly $1.80 per share would imply a stock price of $18 per share, again using a 10 times price/earnings ratio. These are impressive proposed valuations, which have gotten the attention of actual and potential investors in FMCC and FNMA in recent years.
These proposed valuations for the FMCC and FNMA common stocks assume that the U.S. Treasury warrants to own 79.9 percent of FMCC and FNMA are exercised. If they are not exercised, the assumed valuations for FMCC and FNMA would be about $125 and $90 per share, respectively.
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