Updated Aug 13 at 5:03pm ET.
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Rocket reported second-quarter revenue of $2.78 billion, which was slightly below what analysts expected. However, the company delivered $441 million in adjusted profit, marking its best performance in four years. This was driven by the company taking a larger share of both the home purchase and refinance markets.
Management credited its use of artificial intelligence for making the loan process more efficient. By automating more of the work required to approve a mortgage, Rocket can handle more business without a matching increase in costs. This efficiency is the core of our view on the stock: if Rocket can keep its costs low while competitors struggle with a slow market, it should be in a powerful position when home buying eventually picks up again.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
Home sales across the country fell 4.1 percent in July compared to the previous month. A combination of high home prices and elevated mortgage rates has pushed sales to their lowest point in almost two years.
This is a challenging backdrop for Rocket, which earns its money by facilitating home loans. When fewer houses change hands, there is less demand for the mortgages Rocket provides. The company is leaning on its technology to win a larger slice of this shrinking pie, but a broad market slowdown remains a hurdle for growth.
Source: PRNewsWire
The average rate for a 30-year mortgage fell slightly this week to 6.67 percent. While the drop from last week's 6.69 percent is small, it marks the first time rates have moved lower in six weeks.
Rocket's business depends on people wanting to buy or refinance homes, which becomes much harder when rates are high or rising. Even a small dip in rates can help bring hesitant buyers back into the market and improve the volume of loans Rocket processes through its digital platform.
The latest report on consumer prices showed that inflation remained steady in July. Core prices, which strip out volatile items like food and energy, rose 0.2 percent, exactly what analysts expected.
For a mortgage lender like Rocket, steady inflation is a welcome sign. It reduces the chance that the Federal Reserve will raise interest rates further to cool the economy. When rates stop climbing, it is easier for potential homebuyers to plan their purchases and for Rocket to price its loans.
Rocket Companies is set to release its second quarter results today. Analysts expect the company to report revenue of about 2.81 billion dollars and earnings of roughly 16 cents per share.
For a long-term owner, the numbers themselves matter less than what they say about Rocket's efficiency. We are watching the gain on sale margin, which is the profit the company makes on each loan it sells. If that margin stays above 2.75 percent while loan volumes grow, it proves Rocket is using its automated technology to win business without sacrificing its profitability.
Analysts recently adjusted their outlooks following the company's latest earnings report. Most experts are cautious, with 15 of 25 rating the stock as neutral, though the average price target of $19 suggests 24% upside from today's price.
Management has a habit of beating expectations, clearing the bar in six of the last eight quarters. This suggests a reliable ability to manage costs and capture more of the market than analysts expect.
| Expectation | |
|---|---|
| EPS | $0.18 |
| Revenue | $2.64B |
Seeking Alpha · Opinion · Aug 6
PRNewsWire · Press release · Aug 6
PRNewsWire · Press release · Jul 23
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