- If you are wondering whether Federal Agricultural Mortgage at around US$141.62 still offers value or has already priced in its strengths, you are not alone.
- The stock is up 1.0% over the past week, while sitting 11.5% lower over 30 days, with a year to date return of a 19.7% decline and a 22.3% decline over the last year, set against 16.6% and 63.5% positive returns over the past 3 and 5 years respectively.
- Recent news coverage has focused on Federal Agricultural Mortgage's role in providing financing to the US agricultural sector and how investors view its position within diversified financials. These headlines give useful context for the recent price moves by highlighting both sector specific sentiment and broader market attention on financial institutions tied to real asset backed lending.
- Against this backdrop, Federal Agricultural Mortgage holds a valuation score of 6 out of 6. The next step is to compare what different valuation approaches say about the stock and then look at an even richer way to think about value that goes beyond the headline models.
Approach 1: Federal Agricultural Mortgage Excess Returns Analysis
The Excess Returns model looks at how much profit a company can generate above the return that equity investors typically require, then capitalizes those excess profits to estimate an intrinsic value per share.
For Federal Agricultural Mortgage, the model uses a Book Value of $111.54 per share and a Stable EPS of $17.67 per share, based on the median return on equity from the past 5 years. The implied Average Return on Equity is 13.72%, compared with a Cost of Equity of $9.45 per share. That gap creates an Excess Return of $8.22 per share.
The model also assumes a Stable Book Value of $128.81 per share, using weighted future Book Value estimates from 2 analysts. Combining these inputs, the Excess Returns valuation points to an intrinsic value of about $337.91 per share.
Set against the recent share price of around $141.62, this suggests the stock is 58.1% undervalued on this approach.
Result: UNDERVALUED
Our Excess Returns analysis suggests Federal Agricultural Mortgage is undervalued by 58.1%. Track this in your watchlist or portfolio, or discover 61 more high quality undervalued stocks.
Approach 2: Federal Agricultural Mortgage Price vs Earnings
For a profitable company like Federal Agricultural Mortgage, the P/E ratio is a useful way to think about value because it directly links what you pay per share to the earnings that underpin that share price. In general, higher growth expectations and lower perceived risk tend to justify a higher P/E, while slower growth and higher risk usually line up with a lower, more conservative multiple.
Federal Agricultural Mortgage currently trades on a P/E of 8.43x. This sits below the Diversified Financial industry average P/E of 15.37x and below the peer group average of 12.98x. Simply Wall St also provides a “Fair Ratio” of 12.71x, which represents an estimated P/E that could be reasonable for the company once factors like earnings growth profile, profit margins, industry, market cap and key risks are taken into account.
This Fair Ratio is more tailored than a simple comparison with peers or the industry, because it adjusts for company specific fundamentals rather than assuming all diversified financials deserve the same multiple. Comparing 8.43x to the Fair Ratio of 12.71x suggests Federal Agricultural Mortgage is trading below that modelled level.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Federal Agricultural Mortgage Narrative
Earlier it was mentioned that there is an even better way to think about value than just ratios. This is where Narratives come in, because they let you connect your view of Federal Agricultural Mortgage's story to a financial forecast and a fair value on Simply Wall St's Community page. This lets you see how your assumptions about future revenue, earnings and margins translate into a Fair Value that you can compare to the current price, have that view automatically refreshed when new news or earnings are released, and even see how different investors can reasonably disagree. For example, one Narrative might assume a fair value around the analyst consensus target of US$226 based on the forecasts provided, while a more cautious Narrative could sit meaningfully lower if the author places more weight on the regulatory, credit and policy risks outlined in the same data.
Do you think there's more to the story for Federal Agricultural Mortgage? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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