Barclays maintains Rocket Cos underweight, target at $10

On Monday, Barclays (LON:BARC) analyst Terry Ma reiterated an underweight rating on Rocket Companies Inc . (NYSE:RKT) with a steady price target of $10.00, despite the stock’s impressive 22% year-to-date return. According to InvestingPro analysis, RKT appears slightly undervalued based on its Fair Value model, though it trades at a relatively high P/E ratio of 62.7. Ma highlighted the potential benefits of the company’s recent acquisition, which is expected to lead to a more balanced business model capable of performing consistently throughout various market cycles.

Rocket Companies, known for its focus on refinancing, is set to combine forces with a company that holds the title of the nation’s largest servicer. With a current market capitalization of $24 billion and strong revenue growth of 35% over the last twelve months, this strategic move is anticipated to create an entity that can withstand both higher and lower rate environments. Post-acquisition, the company is projected to have a servicing unpaid principal balance (UPB) of approximately $2.15 trillion. InvestingPro subscribers can access 12 additional key insights about RKT’s financial health and growth prospects.

Within this portfolio, about 21.1%, or $266 billion, consists of loans with an interest rate of 6.0% or higher. Additionally, 13.7% of the portfolio, or $174 billion, includes loans with a coupon rate of 6.5% or more. Rocket Companies’ impressive 83% recapture rate is expected to optimize refinancing options, especially if interest rates experience a significant drop.

Ma also noted the operational strength of the acquired company, which ranks as the top subservicer and is among the top three in total servicing, excluding banks. The combination of the two companies is likely to result in cost-effective synergies, as Rocket Companies’ existing serviced portfolio will be transferred to the new partner’s platform.

The analyst concluded that the acquisition would likely increase Rocket Companies’ float, which could be beneficial in the long term. With a beta of 2.37 and an exceptionally strong current ratio of 21.12, the company demonstrates both high volatility and solid financial stability. The company’s ability to maximize refinancing opportunities through its high recapture rate, coupled with the expected cost synergies from the deal, positions Rocket Companies for potential growth in the future. For detailed analysis and comprehensive valuation metrics, investors can access the full Pro Research Report on InvestingPro.

In other recent news, Rocket Companies announced its acquisition of Mr. Cooper in an all-stock transaction valued at $9.4 billion, expected to close in late 2025. This merger will create a significant servicing portfolio, covering nearly 10 million clients, and is anticipated to be accretive to Rocket’s adjusted earnings per share upon closing. Additionally, Rocket Companies plans to acquire Redfin (NASDAQ:RDFN) for $1.75 billion, aiming to integrate Redfin’s online real estate services with its own digital mortgage lending. Fitch Ratings has placed Rocket Mortgage’s ratings under negative watch due to anticipated corporate leverage increases, while Mr. Cooper’s ratings are under positive watch following the merger announcement. Keefe, Bruyette & Woods recently adjusted their price target for Rocket Companies to $12, maintaining an Underperform rating, despite revising earnings per share estimates for the coming years. In other company news, Julie Booth, former CFO of Rocket Companies, has joined the board of Regional Management Corp (NYSE:RM)., bringing extensive financial expertise. These developments highlight significant strategic moves by Rocket Companies in the mortgage and real estate sectors.

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