First, and most importantly, the book value of FNM is an unbelievable -$60! Even at the current price of $1.20, by book value it is still not a bargain. Besides that, the annual EPS estimate for December 2009 is -$10.53. Data obtained from Yahoo! finance.
To obtain a rough estimate of the future EPS after the recovery of the housing markets, I averaged the earnings per share of FNM for 8 years, from 1999 to 2006. The average P/E for those 8 years stands at about $5 per share. Data obtained from MSN Moneycentral and MarketWatch.
In other words, in the most optimistic senario, it's going to take FNM almost 12 years just to bring it's book value back to $0. I don't know about your investment timeframe, but I think there should be better investments elsewhere.
However, perhaps some positives for FNM are income tax deductions due to it's losses, setting it up for a potential asset play in the future. Besides that, the real estate backing its mortgage securities are still worth something, and perhaps in a few years when housing prices pick up again, FNM book value would also recover some of the losses.
In summary, I'm keen on scouting out other easier and more clear cut bargains. However, FNM has the benefit of never going bankrupt and has the potential of being a future turnaround. Besides, the technicals may give a clear signal if, and when, it breaks out above resistance.
(Disclosure: I do not hold any FNM stock at this point in time)
No comments:
Post a Comment