'Tech Driven Growth Story': Analysts Initiate Coverage Of Rocket Companies Following Quiet Period

Rocket Companies Inc RKT is off to a hot start on the public market after pricing its IPO at $18 in early August.

Rocket Companies, the parent company of Quicken Loans and Rocket Mortgage, reported $3.5 billion in net income for the second quarter, up from a $54 million net loss in the same quarter a year ago. Second-quarter revenue of $5 billion was up 437% year over year.

At first glance, Rocket’s earnings and revenue growth rates seem mind-boggling, but emergency Federal Reserve interest rate cuts back in March triggered a boom in the mortgage market. Investors must now determine what to expect from the company in the long run.

Several of Rocket’s IPO underwriters finally weighed in on the stock on Monday following their mandatory quiet period:

• Wells Fargo has an Equal-Weight rating and $29 target.
• RBC Capital Markets has an Outperform rating and $32 target.
• Morgan Stanley has an Equal-Weight rating and $25 target.
• Citi has a Buy rating and $35 target.

See Also: Why The Rocket Companies IPO Marks A Paradigm Shift In Financial Services

Market Share Opportunity: RBC Capital Markets analyst Daniel Perlin said even if the mortgage market cools off, Rocket is well-positioned to continue to gain market share.

“We believe the company’s proprietary technology driven approach will enable it to continue profitably taking share in both refinanced and new purchase loans in the large and fragmented U.S. mortgage market where there are near-term catalysts from rates and demographics,” Perlin wrote in a note.

Citi analyst Arren Cyganovich said Rocket is a “tech driven growth story.”

“We expect that its recent market share gains will extend further as a large cohort of millennials will enter the first-time home buyer market in the coming years,” Cyganovich wrote.

Difficult To Value: Wells Fargo analyst Donald Fandetti said it’s difficult to value a fintech-financial hybrid like Rocket and would be more bullish on the stock under $20.

“Tactically, we are opportunistic on the shares as our cautious call is valuation based and reflects a goldilocks mortgage origination market,” Fandetti wrote.

Morgan Stanley analyst James Faucette said Rocket is a show-me story at this point given the wide range of potential long-term outcomes for the company.

“Our bull and bear case scenarios suggest results and RKT's valuation could move notably higher or lower depending on both its execution and external market/economic factors,” Faucette wrote.

Rocket's stock traded down 2.6% to $27.75 per share at time of publicaiton.