Barclays Reiterates Underweight for Rocket Companies

Barclays analyst Terry Ma has maintained an underweight rating for Rocket Companies Inc. (NYSE: RKT), keeping the price target steady at $10.00. Rocket Companies, known for its focus on the mortgage lending sector, has shown a 22% return year-to-date despite a high price-to-earnings (P/E) ratio of 62.7, which is considered elevated in comparison to industry standards.

Rocket Companies recently announced acquisition plans aimed at diversifying their business model in response to varying market cycles. This strategic move includes a notable acquisition of Mr. Cooper, valued at $9.4 billion, expected to close by late 2025. Additionally, the company plans to acquire Redfin for $1.75 billion. Post-acquisition, Rocket Companies' servicing unpaid principal balance is anticipated to reach approximately $2.15 trillion.

Despite these expansion plans, some concerns have been raised. Fitch Ratings has placed Rocket Mortgage's ratings under negative watch due to anticipated increases in corporate leverage. However, the company maintains an 83% recapture rate, optimizing refinancing potential in the event of falling interest rates.

Rocket Companies' acquisition strategy strengthens its operational capabilities, leveraging the acquired company's standing as the top sub-servicer and among the top three in total servicing, excluding banks. This comes as Rocket Companies experiences notable financial health, evidenced by a market capitalisation of $24 billion and a 35% revenue growth over the past year.

Furthermore, Rocket Companies boasts a beta of 2.37 and a current ratio of 21.12, indicating both high volatility and solid financial stability. These financial metrics, combined with strategic acquisitions, may influence future evaluations by financial analysts, as suggested by Keefe, Bruyette & Woods, who adjusted their price target to $12, maintaining an underperform rating.

While Barclays holds an underweight stance on Rocket Companies, the firm's strategic acquisitions and financial metrics present a complex picture, balancing potential growth opportunities against existing financial and market risks.