B.Riley Starts Fannie Mae (FNMA) at Neutral

B.Riley analyst Randy Binner initiates coverage on Fannie Mae (OTC: FNMA) with a Neutral rating and a price target of $10.00.

The analyst comments: "We are initiating coverage of the Federal National Mortgage Association (FNMA), or "Fannie Mae," with a Neutral rating and a $10 price target. The U.S. government (USG) has held Fannie Mae in conservatorship since the 2008 financial crisis. While the first Trump administration was unable to end the conservatorship and monetize the USG Fannie stake, Trump 2.0 is more organized and focused. Although there are several moving pieces to the analysis, we think it really boils down to what the government wants to do along two main decision paths. In our view, path 1 would be to maximize the senior position held by the U.S. Treasury and require a recapitalization. While the USG could exercise warrants and monetize its 80% stake, this would be highly dilutive to current equity holders. Path 2 would be to forgive or equitize the Treasury's senior preferred position of $121B, as it has effectively been repaid over the years, which would minimize the up-front dilution and maximize a government sale of FNMA shares to investors. We interpret recent comments by Treasury Secretary Bessent as being consistent with scenario 2. While some might view path 2 as uneconomic for USG interests, it would create a better headline and likely a higher-valued stock in the future. In either scenario, the junior preferred position of $19B, consisting of perpetual preferreds from pre-2008, has a good chance to be made whole, or pari-passu to a new preferred issuance, as these otherwise block common dividends."

For an analyst ratings summary and ratings history on Fannie Mae click here. For more ratings news on Fannie Mae click here.

Shares of Fannie Mae closed at $12.36 yesterday.

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