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Bear of the Day: Rocket Companies (RKT)

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Based in Detroit, MI, Rocket Companies (RKT - Free Report) is a personal finance and consumer services holding company that went IPO last August. Its portfolio of brands includes Quicken Loans, Rocket Mortgage, Rocket Homes, Rocket Loans, Rocket Auto, Rock Central, Amrock, Core Digital Media, Rock Connections, Lendesk and Edison Financial.

Q1 Earnings Fail to Impress

Earlier this month, Rocket released first-quarter results, and the stock crashed over 16% as a result.

Revenue increased 236% year-over-year to $4.6 billion, and adjusted net income soared 170% to $1.8 billion. The top and bottom line were fueled by a 100% jump in closed loan origination volume and strong growth across the company’s title insurance, property valuation, and settlement services.

However, Rocket’s guidance was weaker than expected. Management expects closed loan volume of $82.5 billion to $87.5 billion, representing a sequential decline of about 18% at the midpoint.

The company’s lukewarm outlook coincides with the potential of higher interest rates, driven by the economic recovery and rising inflation.

In turn, many analysts cut their price targets for RKT.Analysts Daniel Perlin and Ryan Carr from RBC Capital and Jeffries both cut their forecasts from $30 per share to $26 per share.

Bottom Line

RKT is now a Zacks Rank #5 (Strong Sell).

Two analysts have cut their full year earnings outlook over the past 60 days, with Rocket’s bottom line expected to decline over 41% year-over-year. Wall Street has lowered its earnings picture for 2022, and next year’s consensus has fallen 10 cents to $1.82 per share.

Shares have been volatile so far in 2021. In what appeared to be a Reddit-fueled short squeeze, RKT surged more than 70% on March 2, then plunged 33% the following day after analysts warned the stock had come “too far, too fast.” Year-to-date, RKT is down 13% compared to the S&P 500’s gain of 11.7%.

Rocket Companies, Inc. Price and Consensus

 

There’s no denying that Rocket will be a dominant player in the mortgage industry over the long-term thanks to strategic tech and operations investments, but the short-term will likely be rocky as we enter post-pandemic life.

Investors who are interested in adding a mortgage lender to their portfolio could consider big bank Bank of America (BAC - Free Report) . BAC is a #3 (Hold) on the Zacks Rank, and the Zacks Consensus Estimate has jumped 58 cents to $3.03 a share for fiscal 2021.

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