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Federal Home Loan Mortgage (FMCC) drew investor attention after releasing its latest Primary Mortgage Market Survey, which showed the average 30 year fixed rate at 6.65%, alongside modest relief for homebuyers as rates declined this week.
See our latest analysis for Federal Home Loan Mortgage.
At a share price of US$5.71, Federal Home Loan Mortgage has experienced short term share price pressure, with the 90 day share price return down 10.92%. However, the five year total shareholder return remains very large, supported by a strong three year total shareholder return of around 10x, as investors reassess both growth potential and risk following mortgage rate updates and recent technology focused conference appearances.
If recent mortgage rate moves have you rethinking financials, it can be helpful to widen the lens and see what else is moving in markets through 21 top founder-led companies
Federal Home Loan Mortgage now trades at a steep discount to both analyst targets and one estimate of fair value after a sharp year-to-date decline. Is the market being prudently cautious, or marking the stock down too far ahead of the upcoming valuation details?
Most Popular Narrative: 61.2% Undervalued
Compared with the latest close at $5.71, the most widely followed narrative for Federal Home Loan Mortgage points to a fair value that is materially higher, built on detailed views of its mortgage funding role and long term fee potential.
The single family mortgage portfolio of US$3.7t and Freddie Mac's 51% GSE market share position the company to benefit if refinancing activity stays supported by periods of comparatively lower rates, which can support net interest income and fee driven revenues.
Want to understand why this narrative sees so much value in Freddie Mac at $5.71? The story leans heavily on steady revenue growth, margin repair and a long runway for earnings to catch up with the price implied by that fair value.
Based on this work, the fair value sits at $14.70, using a 12.46% discount rate and long run assumptions for revenue, profit margins and returns on equity that differ from the recent loss making results you see in the reported net income of $12m on $24.6b of revenue.
Result: Fair Value of $14.70 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, this Freddie Mac narrative could be challenged if mortgage rates stay elevated and refinancing weakens, or if housing related credit losses rise more than expected.
Find out about the key risks to this Federal Home Loan Mortgage narrative.
Next Steps
Given the mix of optimism and concern around Federal Home Loan Mortgage, it makes sense to look at the full picture yourself and act promptly. You can weigh the potential benefits against the risks by checking the 3 key rewards and 1 important warning sign
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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.
Companies discussed in this article include FMCC .
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