Forgive me for belaboring a point that seems to be brought up on almost a daily basis here, but I can't help myself.
Lots of speculation on the potential value of FNMA shares when they are released from conservatorship, assuming warrants aren't executed. Many of the posts are crazy in my opinion regarding PPS of $150, $280, etc.
That said, using standard equations:
Q4 earnings: ~$5 bil
Shares outstanding: ~1.2 Bil
Earnings per share: 5,000,000,000 / 1,200,000,000 = $4.17 per share
(This doesn't account for preferred dividends, I have no idea what that total would be, but it would drop the earnings per share). Lets assume after preferred dividends the earnings per share is $3.17.
Using the average P/E Ratio for the financials sector, mortgage industry of 20.5 (at least this is what I found today), that gives us a PPS of $3.17 x 20.5 = $64.99
Someone earlier suggested that a PE Ratio of 12 puts the PPS over $125. Where is the math on this? I am by no means an expert, but I am fairly knowledgeable, and can do basic math. ;)
So, using these standard metrics, how does one come up with a PPS estimate of $125, or higher? (especially with a PE ratio of 12)
My best case scenario for exit point is $80, but again, using these metrics, I can't be certain it will ever get there. Perhaps $50-$60 is a more reasonable expectation.
I welcome constructive feedback.
FWIW: I am long FNMA, and have been since sub $1.
