Jefferies Downgrades Leadership Rankings, Sees Expanded War On Retail Mortgage Prices Ahead

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Rocket Companies Inc (NYSE:RKT) on Monday morning fell 5.2% after one analyst downgraded the stock and said the company will face intense competition in the coming quarters.

Analyst: Jefferies analyst Ryan Carr downgraded Rocket Companies from Buy to Hold and cut its price target from $ 26 to $ 18.

Thesis: Carr stressed that he expects the retail mortgage market to experience margin pressure over the long term.

“With the ongoing price war on the wholesale channel, we conducted a private survey of mortgage brokers and found that very low prices are likely to spill over into retail, while we have a feeling the war will continue beyond 22nd year.” – Carr wrote in his statement. Note.

Carr said he still believes Rocket Companies’ sales will continue to grow, but the price war could undermine the company’s record earnings.

Related link: Why Rocket Stocks Can Have Big Break

Investors hoping the price war would be temporary were likely caught off guard when Rocket recently announced its intention to make the first quarter price cut permanent. Carr said a recent Jefferies poll shows brokers are now taking advantage of price cuts from wholesale partners and are cutting prices themselves in an effort to gain market share.

The current situation has cut margins much faster than in previous cycles in the mortgage market, Carr said.

Looking ahead, Carr looks forward to commenting on the hypercompetitive market from retail mortgage companies on the second quarter’s P&L, which could serve as a bearish catalyst for mortgage stocks in the short term.

Jefferies predicts average profit from sales (GOS) to be around 3.3% in the second quarter and 3% in the second half of 2021.

Take Benzing: The extremely low forward earnings ratios for Rocket shares and other mortgages indicate that investors are already assessing a significant slowdown in business growth following the record-breaking mortgage boom in recent quarters. Based on these estimates, the bar appears to be set relatively low, which means the second quarter income statements could also potentially trigger an upswing, if they are not as bad as anticipated.

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