![]() ![]() ![]() ![]() Rocket has the financial strength to take advantage of that. While a lot of excess industry capacity has come out over the past year due to business shutdowns and layoffs, more will certainly occur. I expect Rocket’s share has bottomed out and will gradually rise again. Essent Mortgage data suggests that about 60% of American homeowners have below 4% mortgages, and at least another 20% have sub-5% mortgages. One key reason for the weak forecast is that so many American homeowners have low-rate mortgages that they have very little reason to refinance, and which should even dampen their interest in moving to another home. Fannie Mae assumes that mortgage rates will fall to 5% by next year, but origination volume next year should still not reach the 2019 level. We all know why mortgage origination volume dove lower since ’21 – higher mortgage interest rates and, to a far lesser extent, higher home prices. Here’s the recent history and Fannie’s forecast: Step 1 is to estimate national originations. Sources: Rocket Companies financial reports. I agree with Rocket that it should not be included in operating income. MSR MTM is a non-cash accounting for changes in the estimate for how much the present value of its loan servicing is worth.Other is Rocket’s other businesses (all relatively small) and its corporate overhead.Wholesale means originating loans through mortgage brokers and other consumer lending partners.Retail includes both Rocket’s direct-to-consumer lending, its ancillary lending services like title insurance, and its income from servicing loans.My earnings model has four key line items, per Rocket’s operating earnings reporting: Rocket should lose money this year and barely make some next year And I argue below that the ’24 consensus estimate could be way high. That is in the neighborhood of Wall Street's expected '24 EPS of $0.83.” Well, now the consensus EPS for Rocket as collected by Seeking Alpha is ($0.05) this year and only $0.53 next year. In my first report from March ’21 I said “ That leaves Rocket's EPS well under $2 a share for a long time.” In my most recent report I said “ I believe that Rocket's normal earnings is about $1.00 a share. Rocket’s earnings got hurt more than I expected by the downturn. ![]() As such, Rocket’s market share of national originations plummeted from its peak of 9½% in Q1 ’21 to 5¼% last quarter.Ĥ. But a regression analysis comparing Rocket's originations against national mortgage purchase and refi data clearly shows that Rocket’s business heavily depends on refinancing. I’ve followed mortgage banking for over 30 years, and I’ve never seen that. For some reason, Rocket does not report its mix of mortgage originations for home purchase and for refi. Rocket is unusually refinancing-dependent. By the way, interesting that the company went public only two months before the cycle peak.ģ. The post-COVID refi boom inevitably ended in today’s mortgage origination world – this quarter’s business volume is 77% below the peak. Home sales are moderately cyclical with the economy, and mortgage refinancing is wildly cyclical with interest rates. Mortgage banking remains wickedly cyclical. They have not been on a “tremendous runway.”Ģ. Rocket’s results over the past two years have paralleled the mortgage banking cycle. Every company is a tech company today, except maybe for the deli I got lunch from today. Rocket is a mortgage banker, not a tech company. I’m restraining my intense desire to make fun of this hype. "Rocket Companies has a proven record of innovation that drives industry disruption…We see tremendous runway to drive long-term profitable growth by increasing market share in the massive and fragmented mortgage industry and leveraging our technology platform to unlock opportunities in our ecosystem. When it went public, the company said this in its first press release, with fun fintech buzzwords in bold: The past two years have been interesting for Rocket, to say the least. I am now lowering the target price to $7-8 and suggesting that holders take money off the table. The stock was $6.30 then, and I gave a $10 target price. I stayed negative until this past September 30, when I gave it a cautious Buy. I wrote my first report on Rocket ( NYSE: RKT) for Seeking Alpha a bit over two years ago, suggesting a Sell at its $17 price at that time. ![]()
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