The Companies:
Ever since Dan Gilbert founded the mortgage company in 1985, he has transformed the company from a storefront company into a totally online mortgage process company. Today, 36 years later, Dan and thousands of his team members are the largest residential mortgage lender in the U.S. They also have created an array of different companies which cover most of the house buying process to capitalize the maximum earning potential. They are there when you are searching and/or listing a house through their Rocket Homes and ForSaleByOwner.com. They are there when you need mortgage loans through their Rocket Mortgage company, and they are there with you while you are in the closing process through their Amrock company. When it is time for a new car they will be there to provide you with a car loan through their Rocket Auto company. How about updating your kitchen and bathroom and/or you decide to go green with a solar system for your home? They are sure to be there to provide you with a personal loan through their Rocket Loans and Rocket Solar companies. Below is the example (from their investor presentation) on the potential of revenues from one client.
Also, below are the lists of their major companies broken into different segments.
Home Financing:
- Rocket Mortgage – Mortgage lender
- Amrock – title insurance, property valuations and settlement services.
- Lendesk – a technology company offering a suite of products to digitize and simplify the Canadian mortgage experience
- Edison Financial – Ontario-based digital mortgage firm using Lendesk’s Spotlight as its lender submission platform.
Home sale and Search:
- Rocket Homes – Home search site and real estate agent network
- For Sale By Owner – Buy and sell properties directly without any real estate agent
Auto Purchase:
- Rocket Auto – Online marketplace where consumers can shop and compare vehicles of many makes and models from a wide network of dealers. They also can sell their cars on this website as well.
Personal Financing:
- Rocket Loans – an online personal loan company
Client Services:
- Rock Connections – Sales and support organization for Rocket and 3rd party organizations
- Core Digital Media – a digital, social and display advertiser in the mortgage, insurance and education sectors
- LowerMyBills.com – connects clients with providers of home loans, auto loans and personal loans – as well as auto, home and life insurance
Solar Energy Industry:
- Rocket Solar (Launched in August, 2021) – Provide loans for solar installation.
The Stock:
The Rocket companies ($RKT) stock is a unique set-up that some of us do not realize. The class A common stock (public that we are buying) is only holding 8% of economic interest (the profit benefit) with only 20% voting power. The Rock Holdings Inc. (privately owned by Dan) which held Class D Common stock is holding 92% of economic interest with a majority of 79% voting power.
The stock price went up this morning to $16.26 despite Morgan Stanley cutting the price target to $15 from $19 while maintaining the Equal-Weight rating yesterday. The 52 week range is from $14.94 to $43. In March 2021, It jumped from $20 to $43 during that short squeeze fiasco with GameStop ($GME) and AMC entertainment holdings ($AMC). Currently, the market cap is only around $2.18 billion based on 8% of economic interest or $27.25 billion as a whole. In the last quarter the company generated net revenue of $3.1 billion with the adjusted net income of $1.1 billion and earning $0.57 per share. They also did a special dividend of $1.11 per share on March 23, 2021. Their 3rd quarter financial summary is below for detail on how the last quarter performed when compared to the year 2019 and 2020.
The company has a healthy balance sheet with cash and cash equivalents of $2.234 billion as shown below in their balance sheet highlights
The current analyst recommendation rating is HOLD based on 17 ratings (11 hold, 3 buy and 3 sell) with an average stock price target of $18.36 ($23.0 high and $14.0 low).
My thoughts:
I like the company for the short term play with the amount of cash they have on hand. They might be able to do a special dividend again and/or acquire a company to gain more market share. They can also continue to do stock buyback. They are a hustler company as a whole in terms of seeking new opportunities and incorporating the valuable information (their client databases) to generate more revenues. My personal short term price target in the next few months is $20. We almost did have a lift- off today with more than 5% gain only to crash down due to the news about the first Omicron variant case confirmed in California. However, with 12.49 million shares shorted (9.8% shares shorted), reaching the price target will only be a matter of time with good news. Of course, there are always risks with interest rates starting to rise (less refinancing and the housing market slowing down) and the uncertainty of the Covid Market!