'Remain Cautious On Mortgage Originators': Rocket Companies Analysts React To Mixed Q1 Earnings

Rocket Companies Inc (NYSE: RKT) shares are trading lower by 5.5% after the mortgage lender reported a sharp decline in revenue.

On Tuesday afternoon, Rocket reported first-quarter adjusted EPS of 15 cents, missing consensus analyst estimates of 19 cents. Revenue for the quarter was $2.67 billion, beating Wall Street's expectations of $2.17 billion. Revenue was down 41% from a year ago.

Rocket reported closed loan origination volume of nearly $54 billion, down from $103.5 billion in the first quarter of 2021. Gain on sale margin of 3.01% was also down from 3.74% a year ago.

Looking ahead, Rocket guided for second-quarter closed loan volume of between $35 billion and $40 billion and gain on sale margins of between 2.6% and 2.9%.

Related Link: Rocket Companies Q1 Earnings Takeaways: Revenue And EPS Fall, Refinances And Cash-Out Mortgages See Strength

Voices From The Street: Credit Suisse analyst Douglas Harter said Rocket's weak origination volumes and lackluster guidance were not surprising given recent reports by mortgage peers.

"GOS revenue (lower volume) and other income (Amrock) were below expectations and were partially offset by lower expenses and higher servicing income (lower amortization expense) to result in the miss vs. our expectations," Harter wrote in a note. Credit Suisse has a Neutral rating and $11 target.

Bank of America analyst Mihir Bhatia said surprisingly low operating expense guidance was a silver lining in an otherwise disappointing report.

"That said, higher rates and robust competition are continuing headwinds that will impact volumes, margins and returns over the near-to-medium term," Bhatia wrote. Bank of America has an Underperform rating and $8 target.

Wells Fargo analyst Donald Fandetti said bearish hedge funds see normalized EPS of only around 70 cents for Rocket.

"We believe the risk is on the upside for the US 10-year Treasury yield, therefore we remain cautious on mortgage originators," Fandetti wrote. Wells Fargo has an Equal-Weight rating and $8 target.

RKT Price Action: The stock is trading around $7.37 per share at press time.