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Bull of the Day: Rocket Companies (RKT)

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Rocket Companies (RKT) is a Zacks #1 (Strong Buy) that consists of personal finance and consumer service brands. Some popular segments include Rocket Mortgage, Rocket Homes, Rocket Auto and Rocket Loans.

The company debuted last year when it had its IPO in August of 2020. Since then, the stock became a favorite of the meme crowd, which caused a violent spike over $40 back in March. But the last few months have not been kind, with the stock falling to all-time lows last week.

However, there has been some buying interest with the recent market rally. And with estimates ticking higher, is it time for the stock to lift off?

About the Company

Rocket is headquartered in Detroit, Michigan and was founded in 1985. The company has a team of 26,000 employees and its flagship company, Rocket Mortgage has consistently been named one of the “100 Best Companies to Work For” by Fortune magazine.

Rocket has a market cap of about $32 Billion and has Zacks Style Scores of “B” in Value but “F” in Growth. The Forward PE is 7, which makes it attractive to value investors.

Q2 Earnings

Rocket reported earnings in August, seeing results come in as expected. Revenue was a slight beat, but the company posted $0.46 v $0.46 expected. Adjusted EBITDA was lower year over year, but closed loan originations came in at $83.8B v the $72.3B.

The CEO commented that they are on pace to be the largest retail home purchase lender in the nation by the end of 2023. He added that their newer businesses Rocket Homes, Rocket Auto and solar program represent significant growth opportunities.

The company has only missed once since becoming a publicly traded stock. Rocket next reports November 11th and estimates have been ticking higher.

Estimates

Over the last 90 days, earnings estimates have jumped higher across most time frames. For the current quarter, we have seen estimates raised by 30%, from $0.37 to $0.48. For the current year, we have seen a 6% move higher in that same time frame.

Rocket Companies, Inc. Price and Consensus

Rocket Companies, Inc. Price and Consensus
Rocket Companies, Inc. Price and Consensus

Rocket Companies, Inc. price-consensus-chart | Rocket Companies, Inc. Quote

Value play and short Interest

The low PE makes this stock very attractive to value investors. Obviously, the market thinks that growth won’t be as rosy investors think. However, if the company does beat expectations, the bulls will be quick to jump in.

Additionally, the stock has a rather large short interest, with about 12 million shares short the stock. This is about 10% of the float, so any positive catalyst will force shorts to buy back the stock.

The Technicals

As mentioned above, the stock recently hit its all-time low just under $15. But the reaction from that level has been extremely positive. The stock snapped back to the $17 area, which is the 50-day moving average. Sellers showed up there, but if the bulls get above that level, we could get some short covering to the 200-day MA.

That 200-day is currently at $19.50, or almost 20% higher from current levels. We most likely need a catalyst to get there and perhaps earnings will be just that.

Bottom Line

Rocket continues to gain market share in the mortgage market and believe their goals for next year are achievable. This stock has been forgotten by the retail crowd, but next months earnings could bring interest back into the name.


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