Rocket Companies Earnings: Lower Spending and Better Margins Partially Offset Low Volumes

Narrow-moat-rated Rocket Companies reported decent third-quarter earnings that were in line with our expectations as the company continues to be affected by weak mortgage conditions industrywide. Adjusted net revenue increased 12.8% from last year but was effectively flat sequentially at $1 billion. The company continues to benefit from its cost-cutting efforts, with the company flipping to an adjusted net gain of $7 million from a loss of $166 million last year. As we incorporate these results, we do not expect to materially alter our $13 per share fair value estimate. We see the shares as undervalued on a full-cycle basis, but near-term results will remain weak until mortgage rates fall, given that Rocket is so highly leveraged to the mortgage cycle.