Making Sense of Rocket Companies’ Newly Added Risk Factors

Rocket Companies (RKT) is an American technology-powered financial services company. It provides home loans and other consumer financial solutions.

Rocket recently acquired Truebill, a personal finance app, for approximately $1.3 billion. Truebill helps users manage their money, offering features that help with budgeting, managing subscriptions, tracking spending, and improving credit scores.

For Q4 2021, Rocket reported revenue of $2.6 billion, in line with the consensus estimate. It posted adjusted earnings of $0.32 per share but missed the consensus forecast of $0.36.

The company ended the quarter with $9.1 billion in liquidity, consisting of $2.1 billion in cash. Rocket plans to distribute a special dividend of $1.01 per share on March 22. Rocket stock currently offers a dividend yield of 8.2%, compared to the sector average of 1.68%.

With this in mind, we used TipRanks to take a look at the newly added risk factors for Rocket Companies.

Risk Factors

According to the new TipRanks Risk Factors tool, Rocket Companies’ top risk category is Finance and Corporate, with 34 of the total 85 risks identified for the stock. Legal and Regulatory and Production are the next two major risk categories with 18 and 10 risks, respectively. Rocket has recently updated its profile with six new risk factors.

The company informs investors that acquisitions have been part of its growth strategy. However, it cautions that it may be unable to achieve the anticipated benefits of these acquisitions or its strategic investments. It warns that failure to achieve the expected benefits from acquisitions or investments could harm its business and financial condition.

Rocket tells investors that it has become the target of securities class-action litigation due to its stock price volatility. The company warns that defending against such lawsuits may be expensive and divert management’s attention, which could, in turn, adversely affect its business.

Finally, Rocket warns that it could lose revenue in its Rocket Auto unit due to challenges in the auto industry. It explains that the auto industry has recently been experiencing low inventory levels caused by factors including semiconductor chip shortages. As a result of the low inventory and increased prices, the company fears that auto dealers may become unwilling to participate in its Rocket Auto network. Moreover, consumer traffic to the site could decline, which could adversely impact the unit’s revenue. 

Rocket Companies’ stock has declined about 14% year-to-date.

Analysts’ Take

Citigroup analyst Arren Cyganovich recently maintained a Buy rating on Rocket Companies stock but cut the price target to $14 from $23. Cyganovich’s reduced price target still suggests 18.14% upside potential. The analyst noted that a recent move by Rocket regarding mortgage origination could lead to lower-than-expected market share gains.

Consensus among analysts is a Hold based on 2 Buys, 8 Holds, and 1 Sell. The average Rocket Companies price target of $13.86 implies 16.96% upside potential to current levels.

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