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Rocket stock price heats up on huge first earnings buzz

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Please click the above link for the article, ‘Rocket stock price heats up on huge first earnings buzz,’ in Detroit Free Press.

Susan Tompor | Detroit Free Press

Detroit-based Rocket has seen its stock launch from an $18 a share IPO price in early August to nearly $30 share at one point in trading. It’s hovered around $27 a share of late.

That’s roughly a 50% gain or more in just 20 days.

It’s a stock that’s been generating a ton of wild online chatter, downright hype and talk from traders — including Tweets from CNBC commentator Jim Cramer. “I liked it at $19 … yes, took a lot of heat for it,” Cramer tweeted on Aug. 25, after Rocket closed at $29.11 a share on Aug. 24.

“Rocket is a Rocket,” Cramer said in another tweet on Aug. 25. “Palantir could be similar.” Palantir Technologies is expected to go public with its heavily anticipated IPO in September.

A string of comments on MarketWatch shows some of the sentiment that fueled Rocket stock so far: “I’m not saying it’s a Tesla or Amazon,” says one giddy person. “Definitely jumping on this one,” says another.

Rocket closed at $28.42 a share on Friday, up $1.32 or 4.87%.

Not all the talk has been great.

The initial public offering for Rocket lost kick before takeoff. The target price range was set to be around $20 to $22 a share, as reported in a filing in July with the Securities and Exchange Commission.

Rocket wanted to portray itself as a tech company, not simply a mortgage giant. But the early players weren’t buying it. Some fret that the mortgage market won’t be able to keep flying this high if the pandemic and job losses remain constant worries in 2021.

Much will depend on how long the 2020 recession drags on.

Stratospheric expectations

As a newly public company, Rocket, the parent of Rocket Mortgage, Quicken Loans and other businesses, will release more financial information about its operations when it reports second quarter 2020 earnings Wednesday.

The expectations are stratospheric. Rocket has talked of posting a record-breaking, second quarter net income of $3.5 billion, which compares to a loss of $54 million a year ago, based on preliminary, unaudited results reported by the company Aug. 14.

For the first quarter, Rocket’s net income was $97.3 million — up from a net loss of $299.3 million for the first quarter in 2019. Revenue hit $1.37 billion, up from $631.8 million in the first quarter of 2019.

The mortgage market has been hot in an ultra-low interest rate environment.

Just how much higher the stock climbs from here, of course, will depend on how well investors like what they hear.

Going forward, the market will want to know how the pandemic is affecting Rocket’s mortgage business and what kind of trouble might be ahead relating to the health of the business, said Josef Schuster, CEO for IPOX Schuster in Chicago.

Overall, 98,000 Rocket clients — or 5.1% of total serviced loans — were in forbearance as of June 30. The Coronavirus Aid, Relief and Economic Security Act provided borrowers with government-backed loans the ability to request a forbearance plan.

Pandemic’s impact

In its filing with the SEC relating to the IPO, Rocket indicated that the company was well-positioned in terms of liquidity to handle the level of forbearances. The SEC filing added: “Although the forbearance activity noted above has not yet had a material impact on our cash flows, we expect servicing advances to grow over time and believe they could become material.”

The dramatic job losses since March pushed some consumers on the financial edge, but many have held on thanks to stimulus checks, a boost in unemployment benefits and ways to cut a temporary deal with lenders through favorable forbearance programs. As that relief ends, the question remains as to how many consumers will default on their loans, including home mortgages.

Schuster said investors also will be interested in hearing Rocket’s forecast for upticks in inflation, as well as a timetable for product innovations.

IPOX Schuster has added Rocket stock to its IPOX 100 U.S. Index, making it the first significant index which has added the stock to its portfolio. The IPOX 100 U.S. is tracked by the First Trust U.S. Equity Opportunities ETF, a $ 1.5 billion exchange traded fund.

For now, Rocket has generated plenty of IPO sizzle with some even betting that Rocket could pay a dividend, which would make the stock more attractive. CEO Jay Farner suggested a dividend could be on the table in the future in a CNBC interview in early August, noting that a dividend could be a “real option for our shareholders.”

ContactSusan Tompor via stompor@freepress.com. Follow her on Twitter@tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.