Bullish indicating open at $55-$60, IPO prices at $37
On Wednesday, Deutsche Bank (ETR:DBKGn) analyst Mark DeVries upgraded Rocket Cos Inc. (NYSE:RKT) from Hold to Buy, setting a new price target of $16.00, up from the previous $16.00. The upgrade is a response to Rocket’s recent announcement of a proposed $9.4 billion acquisition of COOP, which is anticipated to significantly contribute to the company’s market share goals for 2027. According to InvestingPro data, Rocket’s stock has shown strong momentum with an 18.25% YTD return, despite trading at a P/E ratio of 64.1x.
DeVries noted the acquisition should help Rocket Cos achieve at least the 20% refinance share target it set last September. The analyst projects the deal could result in a 38% increase in earnings per share (EPS) by 2027 and also serve to stabilize Rocket’s earnings throughout economic cycles. This stability is expected due to COOP’s servicing book, which could act as an earnings hedge for Rocket when mortgage originations decrease. InvestingPro analysis reveals the company’s strong financial position with a current ratio of 21.12 and revenue growth of 35.21% in the last twelve months.
The report from Deutsche Bank details the valuation methodology behind the new price target, which suggests a 27% upside from Tuesday’s closing price. DeVries also indicated that there is potential for further gains in a lower interest rate environment, which could enhance revenue synergies by increasing COOP’s recapture rate.
Rocket Cos’ strategic move through the acquisition is seen as a significant step toward meeting its long-term objectives, with the potential to reshape its financial landscape and market position. The upgrade reflects confidence in the company’s direction and the anticipated benefits of the acquisition.
In other recent news, Rocket Companies announced a significant all-stock acquisition of Mr. Cooper Group, valued at $9.4 billion, which is expected to transform its mortgage servicing business. This acquisition aims to position Rocket Companies as a leading servicer with an estimated 17% market share, potentially generating $500 million in annual pre-tax revenue and cost synergies by 2027. Analysts at Keefe, Bruyette & Woods maintained an Underperform rating on Rocket Companies with a $12 price target, viewing the acquisition as a positive move despite potential initial share weakness. Barclays (LON:BARC) analyst Terry Ma reiterated an Underweight rating with a $10 target, highlighting the potential for a more balanced business model post-acquisition. UBS analysts maintained a Neutral rating with a $14 price target, noting that while the company’s platform is robust, the stock valuation remains a concern. Rocket Companies’ strategic moves are seen as aligning with its long-term objectives to enhance its market presence. The merger with Mr. Cooper is poised to create a significant shift in the mortgage servicing landscape, potentially leading to substantial revenue and cost synergies. Rocket Companies’ leadership anticipates the transaction will be immediately accretive to its adjusted earnings per share upon closing.
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