Replies to post #606408 on Fannie Mae-No Politics (FNMA)

[kthomp19]

the 250/share was the midpoint of the max potential price from a post by mrfence yesterday. This was based on no dilution. I think if you assumed 95% dilution a target of 7 would not be unreasonable.

These two things are contradictory, actually. 95% dilution leading to a share price of $7 means that no dilution would lead to a share price of $140: 7 / (1 - 0.95) = 140.

There are two things that are unreasonable about the $125-375 undiluted range:

1) The P/E ratio range is unrealistic. Banking and insurance stocks have average P/E ratios in the high single digits right now, and only rarely approach 20. 10-15 is a much more reasonable range going forward.
2) Fannie made $14.2B last year, but $3.2B of it was due to a benefit for credit losses that will roll off in the next year or so; see this comment by Tim Howard for details. Using $11B as the base income going forward is much more reasonable, and leads to an undiluted EPS number of $9.57.

Multiplying a 10-15 P/E range by $9.57 per share leads to an undiluted price range of $96-144.

That means that a common share price of $7.00 after 95% dilution is (slightly less than) the best case, not the midpoint, with $4.80 being the low end.

[Donotunderstand]

95%

19:1

is that the same ?

Hard to see so many shares if that is 19x the number today? (1.2B or ?)