Rocket Companies (RKT) Collapses 15% on Q1 Miss, Analyst Lowers PT to Reflect Weak Outlook

Shares of Rocket Companies (NYSE: RKT) are down by over 15% in today’s trading session after the company missed on analysts’ estimates for Q1.

The leading mortgage provider reported non-GAAP EPS of $0.89 per share to miss on the $0.90 expected from the Street. GAAP EPS came in at $1.07 per share, which is better than the $0.94 expected from analysts.

Revenue also missed as it came at $4.04 billion while the Street expected $4.28 billion in sales. For Q2, RKT said expects closed loan volume of between $82.5 billion and $87.5 billion, net rate lock volume of between $81.5 billion and $88.5 billion, and gains on sale margins of 2.65% to 2.95%.

“This was the sixth consecutive quarter where our team was able to double the company's home loan volume year-over-year. While the mortgage business continues to perform – with March producing our highest-ever purchase application volume – we also had success in our other verticals,” said Jay Farner, Rocket Companies' Vice Chairman and CEO.

BofA analyst Mihir Bhatia reiterated the “Neutral” rating and $24.00 per share price target as he expects “shares to be pressured” following a 1Q report as the 2Q guidance came in below consensus.

“This is clearly a negative for estimates and was a key driver of our downgrade last month. We expect a negative EPS revision cycle. It will also bolster ‘Bear’ arguments that margins are highly unpredictable. That said, more Bullish investors can point to solid 1Q earnings ($1.7B of Adj. Net Income), a market-leading brand, strong balance sheet, and RKT’s long-term investment focus as positives in the 1Q report. Overall, while we expect some pressure due to disappointing 2Q guidance, we view the longer-term risk-reward picture as more balanced,” the analyst said in a note.

Ryan Carr, an analyst at Jefferies, lowered the price target to $26.00 per share from $30.00 on a Buy-rated RKT to reflect more conservative guidance shared by the management.

“RKT has been engaged in a recently-initiated direct war with UWMC, which has significantly pressured Partner margins. Peers have seen similar compression as a result. We attribute the qtr volume miss largely to this increased competitive environment,” notes Carr in a note.

“We get the sense that RKT is competing on price to expand market share in this segment. Over the LT, we believe this is the correct strategy to ultimately prevail in this fierce competitive environment, although will weigh on the channel's profitability in the intermediate term.”

For Carr, the current war with UWMC is only a “temporary headwind”.

“We believe RKT is positioning itself to succeed LT, particularly as it has the size/scale/technology to continually gain share. Maintain Buy, particularly as 2Q likely represents the nadir for Partner GOS, while RKT has meaningful visibility to sustain >$2/sh EPS thru '22,” he concludes.

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