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Rocket Companies Inc (NYSE:RKT) shares jumped more than 10% on Thursday and over 48% this year, and Wells Fargo analysts said the firm has received questions about the company’s recent performance.
Despite the over 2% decline Friday, the analysts said they attribute the recent move higher in RKT shares to the changing view on the rate outlook and, therefore, short covering.
“Lower rates have driven a bid for the shares, plus short interest is 33% for this low-float stock,” wrote the analysts. In addition, the analysts, who reiterated an Overweight rating on the stock, pointed to long-only interest being “up a bit.”
“It’s already a low float stock, and the short interest is 33%,” the analysts said. “Given the decline in rates, we believe the ultra bearish thesis is not compelling at all, which could drive more upside from a technical perspective.”
Looking at the RKT’s mortgage fundamentals, the analysts said near-term estimates still show them making no money, but lower rates should soon drive upside to consensus EPS.
“Mortgage rates are declining with the broader interest rate environment. But originations are still quite low as there’s not much refi unless rates drop dramatically,” add the analysts. “Purchase has increased recently, though still at low levels. Fortunately, capacity continues to come out of the industry at a more rapid rate, which should benefit margins this year.”
