Federal National Mortgage Association (FNMA) is back in focus after BTIG shifted its rating to Neutral, as reports suggest Donald Trump’s interest in a related stock offering has cooled. This has put fresh attention on political risk.

Despite the political headlines, Federal National Mortgage Association’s 1 day share price return of 0.79% and 90 day gain of 20% sit against a 30 day decline of 9.79% and year to date fall of 42.18%. The 3 year total shareholder return is very large at over 13x, pointing to fading recent momentum after a substantial multi year rerating.

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With Federal National Mortgage Association trading at $6.36 against a $10.50 analyst target and a very large 3 year total return, investors now face a simple question: is there still value on the table, or is the market already pricing in future growth?

Most Popular Narrative: 47.4% Undervalued

Federal National Mortgage Association’s most followed narrative points to a fair value almost twice the last close of $6.36, which puts a spotlight on how analysts see its long term earnings power.

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.

For readers interested in what kind of revenue curve and margin profile could justify analysts assigning this valuation to Federal National Mortgage Association, even with shrinking earnings reflected in the assumptions, the full narrative presents a detailed earnings path, implied multiples and capital build that you can compare with your own assumptions.

Result: Fair Value of $12.08 (UNDERVALUED)

However, Federal National Mortgage Association’s story could change quickly if housing market weakness cuts into the $4.1t guaranty book or if multifamily credit losses keep climbing.

Next Steps

With mixed signals around valuation, political risk and housing exposure, it makes sense to look at the full picture and move quickly to form your own view using the 3 key rewards and 3 important warning signs.

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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.