Wedbush Starts Fannie Mae At Underperform, Sees Shares Heading To Zero

Wedbush analyst Henry Coffey initiated coverage of Fannie Mae (FNMA) with an Underperform rating and $0 price target.

The stock closed Tuesday at $2.09.

Fannie Mae has a "relatively high level of value" in its underlying enterprise value and "ample room" for a substantial capital raise, Coffey tells investors in a research note. However, the dilution to existing holders of the public shares in any recapitalization is "likely to be substantial," and "arguably reduce their value to essentially zero," contends the analyst.

Coffey sees potential upside in the combined market value of the junior preferred but thinks there "will be little left over for the common," given its "junior position in the capital waterfall and the dilution associated with Treasury's warrants."