Why Shares of Rocket Companies Are Soaring Today
Rocket provided stronger-than-expected adjusted revenue guidance for the third quarter of the year.
Management is somewhat optimistic about the summer homebuying season.
Rocket would benefit from lower interest rates.
10 stocks we like better than Rocket Companies ›
Shares of Rocket Companies (NYSE: RKT) traded nearly 14% higher, as of 11:29 a.m. ET today, after the company reported better-than-expected earnings results and issued strong guidance for the third quarter of the year.
Starting to gain some momentum
In the second quarter, Rocket reported adjusted diluted earnings per share of $0.04 on adjusted revenue of $1.34 billion, both of which came in ahead of Wall Street analyst estimates, and exceeded the high end of management's previous guidance.
Management also provided encouraging third-quarter adjusted revenue guidance of $1.6 billion to $1.75 billion in revenue, ahead of analyst estimates coming into the quarter.
Rocket's CFO Brian Brown said on the company's second-quarter earnings call:
As we look ahead to the third quarter, we're cautiously optimistic about the summer homebuying season as the market continues to shift in favor of buyers. While we know that the homebuying season typically slows around Labor Day as kids return to school and families settle down, our current approval letter pipeline indicates that the summer homebuying season will be extended, with strong activity continuing through the third quarter.
A good play in a falling interest rate environment
As one of the largest mortgage originators in the U.S., Rocket would benefit from interest rate cuts, and the chance of a rate cut in September increased significantly after weak labor market data this morning. Rocket has also done a good job of gaining more share of the historically fragmented mortgage market with its recent acquisitions of Redfin and Mr. Cooper Group. As one of the largest mortgage servicing companies, Mr. Cooper Group will help shore up revenue in a rising interest rate environment.
Rocket trades at a very high forward earnings multiple of about 62x and a very low forward revenue multiple of less than 0.5x. I think investors can have some exposure to the company, as it should do well if rates fall and eventually bring down mortgage rates.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool recommends Rocket Companies. The Motley Fool has a disclosure policy.
Why Shares of Rocket Companies Are Soaring Today was originally published by The Motley Fool
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