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Rocket Companies Inc Ordinary Shares Class A RKT

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Morningstar’s Analysis

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Launching Coverage of Rocket Companies With a Narrow Moat, Stable Moat Trend, and a $21 FVE

Michael Miller Equity Analyst

Analyst Note

| Michael Miller |

We are initiating coverage on Rocket Companies with a $21 per share fair value estimate, narrow-moat rating, and an exemplary capital allocation rating. We consider the stock 17.4% undervalued based on the $17.35 closing price on Aug. 31. Our fair value translates to 10 times our 2021 earnings projection. This may appear low, but Rocket is coming off a cyclical peak in mortgage origination profitability that started in 2020 and extended into 2021 as low interest rates drove higher mortgage refinance activity.  We do not expect earnings to return to their prepandemic levels, as Rocket has gained market share during the pandemic, but the company’s future earnings growth will likely occur off a lower normalized base. 

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Company Profile

Business Description

Rocket Companies is a financial services company that was originally founded as Rock Financial in 1985 and is currently based in Detroit. Rocket Companies offers a wide array of services and products but is best known for its Rocket Mortgage business. The company's mortgage lending operations are split between its direct-to-consumer lending, which sees borrowers accessing the company's lending arm directly through either its mobile app or website, and its partner network where mortgage brokers and other firms use Rocket's origination process to offer loans to their customers. The company has rapidly gained market share in recent years and is now the largest mortgage originator in the U.S. as well as the servicer for more than 2 million loans.

1050 Woodward Avenue
Detroit, MI, 48226
T +1 313 373-7990
Sector Financial Services
Industry Mortgage Finance
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 24,000