Shares of Rocket Companies (NYSE: RKT) are soaring on Wednesday. The mortgage company’s stock gained 11.3% as of 11:50 a.m. ET and was up as much as 15.7% earlier in the day. The jump comes as the S&P 500 and Nasdaq Composite showed modest gains.
A major Wall Street bank upgraded the stock following a recent acquisition announcement.
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Deutsche Bank analyst Mark DeVries gave Rocket a boost, upgrading the stock from a hold to a buy and raising his price target to $16 from $14. DeVries cited the company’s $9.4 billion acquisition of Mr. Cooper Group, a major home-loan servicer, which it announced just days ago.
The analyst believes that the acquisition puts Rocket on track to meet its ambitious 2027 market-share targets like capturing 20% of the refinance market. According to DeVries, the deal could provide “38% [earnings per share] accretion in 2027” while also reducing the company’s earnings volatility throughout market cycles due to the $1.5 trillion of loans Rocket will gain from Mr. Cooper Group.
The combination of these two mortgage giants creates a company with significant market share in both origination and servicing, making the company more resilient in different markets. There are, however, some inherent risks with such a large acquisition; it’s no small task to integrate the two.
Furthermore, Rocket’s stock looks pretty expensive compared to the competition even with the added earnings from the acquisition. I would stay away from it for the time being.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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