JPMorgan Upgrades Rocket Companies, Predicts Rotation To Credit-Sensitive Stocks

Rocket Companies Inc RKT shares traded slightly higher on Friday after a major Wall Street firm upgraded the stock.

The Analyst: JPMorgan analyst Richard Shane upgraded Rocket Companies from Neutral to Overweight and cut his price target from $31 to $28.50.

The Thesis: Shane said Rocket is both the biggest and the most profitable personal lending and mortgage finance company.

“Rocket has developed an integrated, end-to-end technology platform that is streamlining originations and disrupting a $2T market,” Shane wrote in the note.

He said Rocket is leveraging both scale and efficiency in the large and fragmented mortgage market.

Shane expects to rotate toward more credit-sensitive stocks, potentially creating bullish momentum for Rocket. In addition, he said there is upside to Rocket’s EPS in the second half of 2020 due to gain-on-scale margin improvements and elevated primary/secondary credit spreads.

Related Links: Rocket Companies Shares Surge On Realtor.com Partnership, Strong Housing Data

Rocket subsidiary Quicken Loans is leaning into an extremely strong 2020 housing market. In early September, the company reported a $3.5 billion second-quarter profit on revenue of more than $5 billion. Loan origination volume was a record $72.3 billion for the quarter, up 126% from a year ago.

Earlier this month, Rocket also inked a new advertising deal with popular real estate listings platform Realtor.com.

Near-zero interest rates continue to drive an extremely strong U.S. housing market. Housing prices are up 6% from a year ago, according to data analytics firm CoreLogic. In September, the average amount of time it took to sell a home fell to just 54 days, the shortest period since Realtor.com began tracking data back in 2016.

Benzinga’s Take: Investors will be watching to see if the housing market says hot in the fourth quarter and if the Realtor.com deal has any significant impact on Rocket’s numbers.