On Monday, Keefe, Bruyette & Woods raised its rating on Freddie Mac (OTC:FMCC (OTC:FMCC)) stock from Market Perform to Outperform, setting a new price target of $2.50, up from the previous $1.25. The firm anticipates the shares will outperform in the coming months, influenced by the dynamics of the forthcoming presidential election.
The upgrade reflects the firm's view that the stock has potential for significant gains, especially with the upcoming presidential election expected to be tightly contested.
The firm noted that during the Trump administration, both Fannie Mae and Freddie Mac's common and preferred shares traded at levels up to three times higher than current prices. In light of this, the firm suggests that a close election could lead to a substantial increase in share value as the market prices in the possibility of a change in the White House.
The new price target for Freddie Mac 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. Keefe, Bruyette & Woods explained that the adjusted price targets for Freddie Mac and Fannie Mae, which was also raised to $2.00, are founded on more optimistic assumptions. These include a higher conversion price for the Treasury's senior preferred shares.
Although the outlook remains uncertain, the firm believes the current market conditions and political climate could favor the stocks in the short term.
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