Deciding what to do with Federal Home Loan Mortgage stock right now might feel a bit like standing at the edge of a roller coaster, with lots of twists, turns, and excitement. After all, this stock has posted jaw-dropping performance, with a return of 242.7% year-to-date and an extraordinary 895.7% over the past year. Of course, getting to those heights comes with its share of dips. The last 30 days saw the stock slide 14.4%, while the most recent week logged a 5% drop. These kinds of swings can test even the steeliest investor nerves, but they also point to just how pivotal the latest news and expectations are for Freddie Mac's next chapter.
Lately, headlines have been swirling with speculation about a potential IPO, possibly one of the largest ever, and major banks are reportedly jockeying for a spot at the table. Add to that high-profile discussions in Washington about jumpstarting homebuilders, and suggestions of a merger with Fannie Mae, and you can see why the market is recalibrating so quickly. Sometimes it's risk perception, sometimes it's optimism about growth, and sometimes it's both, all at once.
Where does all this leave us in terms of value? According to our value score, where companies get one point for each check they pass as undervalued out of a total of six, Federal Home Loan Mortgage rings in at a solid 4 out of 6. That's a strong signal, but it only scratches the surface. Next, we'll dig into each valuation approach to get a clearer picture of the stock's real potential, and at the end, I'll share a perspective for thinking beyond the usual playbook.
Federal Home Loan Mortgage delivered 895.7% returns over the last year. See how this stacks up to the rest of the Diversified Financial industry.
Approach 1: Federal Home Loan Mortgage Discounted Cash Flow (DCF) Analysis
The Discounted Cash Flow (DCF) model estimates the intrinsic value of a company by projecting its future cash flows and discounting them back to today's dollars. This provides an informed estimate of what the business is truly worth.
For Federal Home Loan Mortgage, the latest reported Free Cash Flow stands at $14.5 Billion. Analysts expect this number to grow robustly over the coming years, with projections reaching nearly $32.3 Billion by 2035. The company's cash flows are projected to remain strong, with annual growth rates moderating over time. The growth rate is estimated to start at 19.6% in 2026 and gradually ease through the next decade.
Based on the DCF analysis, the fair value per share is calculated at $77.14. When compared to the current share price, this implies the stock is trading at a substantial 85% discount to its estimated intrinsic worth. In short, according to the DCF model, Federal Home Loan Mortgage shares are significantly undervalued by the market right now.