Rocket Companies (RKT, Financial) experienced a notable surge in its stock price, gaining 12.25% today. The upward movement was primarily driven by an upgrade from Deutsche Bank following Rocket's major acquisition announcement of Mr. Cooper Group, a home-loan servicer, for $9.4 billion.
Rocket Companies, known for its Rocket Mortgage segment, has recently been in the spotlight due to this strategic acquisition. Deutsche Bank analyst Mark DeVries upgraded the stock to a "buy," aligning with the positive market sentiment. The acquisition is expected to not only aid Rocket in capturing a 20% share of the refinance market by 2027 but also increase earnings per share by 38% and stabilize earnings volatility with the addition of $1.5 trillion in loans.
Currently, Rocket Companies (RKT, Financial) trades at a price of $14.14 with a P/E ratio of 88.39, which is close to its two-year low. The company's market cap stands at approximately $2.09 billion. According to GuruFocus, the stock is considered to be significantly undervalued with a GF Value of $51.89, indicating substantial upside potential. The financial services company is the largest mortgage originator in the U.S., a sector that continues to show promise despite the challenges in interest rate volatility.
However, Rocket Companies faces some financial challenges. The Beneish M-Score suggests possible financial manipulations, while the financial strength is considered poor due to excessive debt. Despite these concerns, the company's revenue per share has been in decline for the last five years, the acquisition could be a game-changer for Rocket Companies by bolstering its refinancing capabilities and providing growth in the mortgage finance sub-industry.
With significant insider and institutional backing, Rocket Companies remains a stock to watch as it endeavors to achieve its ambitious growth targets. The recent acquisition could provide the necessary leverage to improve its financial health and profitability grade over time.
