On Monday, Keefe, Bruyette & Woods made a positive adjustment to its stance on Fannie Mae (OTC: FNMA (ST:FNMA)), raising the stock from Market Perform to Outperform and setting a new price target of $2.00.
The revision follows a recent upgrade to Market Perform and is driven by a strategic assessment of the upcoming summer period. The firm anticipates that the shares are well-positioned to outperform in the context of what is expected to be a tightly contested presidential election.
Keefe, Bruyette & Woods noted that during the Trump administration, both common and preferred shares of Fannie Mae and Freddie Mac traded at levels up to three times higher than their current trading prices. The firm suggests that in the event of a close election, there could be significant upside from the current levels as the market begins to factor in the potential for a change in the White House.
The upgrade also comes with an increase in the price target for Fannie Mae to $2.00 from the previous target of $1.25. This new target is based on the present value of normalized earnings and includes the assumption that the government will convert its senior preferred shares into common stock.
The firm's revised price target for Freddie Mac (OTC: FMCC (OTC:FMCC)) was also mentioned, raising it to $2.50 from $1.25.
The more optimistic price targets set by Keefe, Bruyette & Woods are founded on more favorable assumptions. These include a higher conversion price for the Treasury's senior preferred shares, which is part of the firm's calculations.
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