Rocket Companies (RKT) - A Mortgage Provider or a Fin Tech Leader?

Summary RKT is Priced Like a Legacy Mortgage Company when it should be priced like a fin tech If mortgage market continues to boom, RKT is well positioned Technicals: 50 and 10 day simple and exponential moving averages indicate a buy Rocket Companies (RKT) is a fintech company that operates several brands including the flagship Rocket Mortgage. I think RKT presents an opportunity to buy serious value at a cheap price, because the market has not priced in the underlying fact that RKT is a tech company akin to Square, Paypal, etc. RKT has disrupted the lending industry and has embraced a fully digital ecosystem, which will continue to drive customer acquisition and retention in the future RKT spends considerable money and resources on UX/UI development, client experience, and marketing. This will also help drive their continued expansion into the lending market. RKTs balance sheet, income, and liabilities support a stock price several times higher than the current price. Price Target  Median: $24.62 High: $33.00 Comparable on P/E ratio forward-looking P/E ratio of just over 5.5 – making KRT undervalued Sector (mortgages companies) median P/E ratio is ~10 Similar Fin Tech company, like Fiserv has P/E ratio of 24x). Assume RKT is worth 15x earnings, and that it hits the estimate of $3.85 eps. That would put its fair value right now at $57.75 per share. Management The RKT team is not the new kids on the block, they have decades of industry experience. Also, I value leaders that make people feel valued. And on that note, under CEO Jay Farner Quicken Loans has been in the top 30 of Fortune’s “100 Best Companies to Work For” list for 17 consecutive years. Financials Summary When it comes to the numbers, RKT is killing it. I don’t want to just spout a bunch of numbers that anyone can easily go look up so here’s a couple that stood out to me from the Q3 earnings announcement and related data: $4.63 billion in revenue, which is 163% YoY growth. From that revenue, they beat EPS estimates with $1.21 for the quarter vs $1.09 expected. Net income was $2.4 billion which represents a YoY growth of 365%. Closed loan volume YoY growth was 122% to $89B. Net rate lock volume was $94.7 Billion (101% growth). Product Channel Growth Direct-to-consumer Q3 growth: 131% YoY ($53.5B closed loan volume) Partner Network growth 127% YoY ($29.6B closed volume) Adjusted Revenue for Partner Network is up 502% YTD vs 2019 ( see Q3 earnings transcript) Options Chain Calls for March 5, 2021 as of February 26, 2021 (note: these prices will likely be differnt when viewed in real time) https://finance.yahoo.com/quote/RKT/options/ Contract Name Strike Last Price Volume Open Interest Implied Volatility RKT210305C00020000  $    20.00  $       2.01 2,260 2,238 0.00% RKT210305C00020500  $    20.50  $       1.62 1,332 2,291 0.00% RKT210305C00021000  $    21.00  $       1.44 2,971 2,918 0.00% RKT210305C00021500  $    21.50  $       1.04 2,013 1,431 0.00% RKT210305C00022000  $    22.00  $       0.85 10,224 5,330 3.13% RKT210305C00022500  $    22.50  $       0.73 8,495 3,009 6.25% RKT210305C00023000  $    23.00  $       0.64 11,797 6,783 12.50% RKT210305C00023500  $    23.50  $       0.57 4,102 1,274 12.50% RKT210305C00024000  $    24.00  $       0.49 5,533 3,698 25.00% RKT210305C00024500  $    24.50  $       0.46 1,141 828 25.00% RKT210305C00025000  $    25.00  $       0.40 14,286 7,852 25.00% RKT210305C00026000  $    26.00  $       0.32 3,605 2,100 50.00% RKT210305C00026500  $    26.50  $       0.28 497 567 50.00% RKT210305C00027000  $    27.00  $       0.26 2,048 1,150 50.00% RKT210305C00027500  $    27.50  $       0.23 265 250 50.00% RKT210305C00028000  $    28.00  $       0.21 607 949 50.00% RKT210305C00028500  $    28.50  $       0.19 391 365 50.00% RKT210305C00029000  $    29.00  $       0.16 162 198 50.00% RKT210305C00030000  $    30.00  $       0.15 2,768 1,958 50.00%

back

Rocket Companies (RKT) - A Mortgage Provider or a Fin Tech Leader?

bullish

Summary

  • RKT is Priced Like a Legacy Mortgage Company when it should be priced like a fin tech
  • If mortgage market continues to boom, RKT is well positioned
  • Technicals: 50 and 10 day simple and exponential moving averages indicate a buy

Rocket Companies (RKT) is a fintech company that operates several brands including the flagship Rocket Mortgage. I think RKT presents an opportunity to buy serious value at a cheap price, because the market has not priced in the underlying fact that RKT is a tech company akin to Square, Paypal, etc.

RKT has disrupted the lending industry and has embraced a fully digital ecosystem, which will continue to drive customer acquisition and retention in the future

RKT spends considerable money and resources on UX/UI development, client experience, and marketing. This will also help drive their continued expansion into the lending market.

RKTs balance sheet, income, and liabilities support a stock price several times higher than the current price.

Price Target 

  • Median: $24.62
  • High: $33.00

Comparable on P/E ratio

  • forward-looking P/E ratio of just over 5.5 – making KRT undervalued
  • Sector (mortgages companies) median P/E ratio is ~10
  • Similar Fin Tech company, like Fiserv has P/E ratio of 24x).

Assume RKT is worth 15x earnings, and that it hits the estimate of $3.85 eps. That would put its fair value right now at $57.75 per share.

Management

The RKT team is not the new kids on the block, they have decades of industry experience. Also, I value leaders that make people feel valued. And on that note, under CEO Jay Farner Quicken Loans has been in the top 30 of Fortune’s “100 Best Companies to Work For” list for 17 consecutive years.

Financials Summary

When it comes to the numbers, RKT is killing it. I don’t want to just spout a bunch of numbers that anyone can easily go look up so here’s a couple that stood out to me from the Q3 earnings announcement and related data:

  • $4.63 billion in revenue, which is 163% YoY growth.
  • From that revenue, they beat EPS estimates with $1.21 for the quarter vs $1.09 expected.
  • Net income was $2.4 billion which represents a YoY growth of 365%.
  • Closed loan volume YoY growth was 122% to $89B.
  • Net rate lock volume was $94.7 Billion (101% growth).

Product Channel Growth

  • Direct-to-consumer Q3 growth: 131% YoY ($53.5B closed loan volume)
  • Partner Network growth 127% YoY ($29.6B closed volume)
  • Adjusted Revenue for Partner Network is up 502% YTD vs 2019 ( see Q3 earnings transcript)

Options Chain

Calls for March 5, 2021 as of February 26, 2021 (note: these prices will likely be differnt when viewed in real time)


https://finance.yahoo.com/quote/RKT/options/

Contract Name

Strike

Last Price

Volume

Open Interest

Implied Volatility

RKT210305C00020000

 $    20.00

 $       2.01

2,260

2,238

0.00%

RKT210305C00020500

 $    20.50

 $       1.62

1,332

2,291

0.00%

RKT210305C00021000

 $    21.00

 $       1.44

2,971

2,918

0.00%

RKT210305C00021500

 $    21.50

 $       1.04

2,013

1,431

0.00%

RKT210305C00022000

 $    22.00

 $       0.85

10,224

5,330

3.13%

RKT210305C00022500

 $    22.50

 $       0.73

8,495

3,009

6.25%

RKT210305C00023000

 $    23.00

 $       0.64

11,797

6,783

12.50%

RKT210305C00023500

 $    23.50

 $       0.57

4,102

1,274

12.50%

RKT210305C00024000

 $    24.00

 $       0.49

5,533

3,698

25.00%

RKT210305C00024500

 $    24.50

 $       0.46

1,141

828

25.00%

RKT210305C00025000

 $    25.00

 $       0.40

14,286

7,852

25.00%

RKT210305C00026000

 $    26.00

 $       0.32

3,605

2,100

50.00%

RKT210305C00026500

 $    26.50

 $       0.28

497

567

50.00%

RKT210305C00027000

 $    27.00

 $       0.26

2,048

1,150

50.00%

RKT210305C00027500

 $    27.50

 $       0.23

265

250

50.00%

RKT210305C00028000

 $    28.00

 $       0.21

607

949

50.00%

RKT210305C00028500

 $    28.50

 $       0.19

391

365

50.00%

RKT210305C00029000

 $    29.00

 $       0.16

162

198

50.00%

RKT210305C00030000

 $    30.00

 $       0.15

2,768

1,958

50.00%

 

Comments

Write your comment....

Sign in to comment

read-time
4 min

24.94

Target Price

6/ 10

Confidence

1-2 Months

Timeframe
Share
catalyst icon
Earnings Release
catalyst icon
News
catalyst icon
SEC Filing
catalyst icon
Sentiment
catalyst icon
Other Catalyst

RKT Channel

Start new chat
aiodd-ad
next