Fannie Mae and Freddie Mac investors are underestimating the chances of a public market re-entry from the mortgage giants after a lull in chatter around the names, according to Mizuho's Dan Dolev. 

Dolev initiated both companies this week with buy ratings, citing a base case assuming a 30% chance that Fannie will exit its government conservatorship by 2028, and a 20% chance for Freddie. The public listings could command a higher priority for the Trump Administration as the war between the US and Iran improves, he said. 

"The market is giving too low of a probability of them going public by 2028. We think there's a slightly higher probability that it will happen," Dolev said in an interview. As Iran tensions wind down, "there'll be more time free to deal with this," he added.  

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The possibility that the Trump Administration could end 17 years of government control sent shares of both companies higher in 2024 and 2025. However, at the start of the year the stocks sharply pared those gains amid a lack of clarity around the government's plans. As a result, shares of Fannie and Freddie — which trade over the counter — have plunged nearly 50% from their September highs.

The call focuses on a "fast exit" for the companies, including a 2.5% capital requirement and the government's senior preferred shares deemed repaid by 2028, and is most sensitive to the likelihood of this outcome. Every 10 percentage point increase in the chances would add $3 to Fannie's weighted price target and $4 to Freddie's, he said in a May 4 note. 

Dolev's $10 price target on Fannie is 25% above the stock's Thursday close, and his $9 target on Freddie represents roughly 26% upside from its last closing price. He's the sixth analyst covering Fannie and fifth on Freddie, according to data compiled by Bloomberg.

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Both Fannie and Freddie have garnered other bullish attention from Wall Street. In March, fund manager Bill Ackman, who's been pitching the White House on plans for releasing the companies from government control, called the mortgage-finance giants "stupidly cheap." Michael Burry of The Big Short fame, who once dubbed them the "Toxic Twins," disclosed a bullish position in early December via his Substack newsletter, though he later wrote that "the IPO is now a 2027 proposition at best."

Still, uncertainty around the path to privatization remains a key overhang for shares. On Wednesday, Bill Pulte, director of the Federal Housing Finance Agency reiterated that any decision regarding potential IPOs of the companies ultimately rests with President Donald Trump. 

"I don't have a crystal ball," Dolev adds. "If it goes public, it's worth a lot more than it's worth today."