Rocket Companies (NYSE: RKT) shares rebounded on Friday, closing at $13.72 after a turbulent week that saw the stock dip following its second-quarter earnings report. The stock gained 3.8% for the session and finished the week up 6.4%, recovering much of the losses from Thursday's regular trading and after-hours slide.
The most significant development in the company's latest filing was the sale of mortgage-servicing rights for $795 million in cash. This transaction involved servicing rights tied to $53 billion in unpaid principal balance, representing just 2.7% of Rocket's massive $2.0 trillion servicing portfolio. Notably, the company retained subservicing and recapture services on nearly 80% of the sold pool, meaning it will continue to manage roughly $42 billion of that principal. The cash proceeds, which were not classified as operating profit, contributed to Rocket's total liquidity of $11.2 billion.
This strategic move highlights Rocket's ability to monetize a small portion of its existing servicing assets while maintaining customer relationships. The company's purchase share climbed to 6.2%, and its refinance share rose to 14.3%, both representing company highs. These metrics underscore Rocket's growing market presence even as the mortgage industry faces headwinds from elevated interest rates.
Rocket's second-quarter results were impressive on several fronts. Total revenue nearly doubled year-over-year to $2.784 billion, while GAAP net income surged to $229 million. Adjusted revenue reached $2.761 billion, and adjusted EBITDA came in at $766 million. CEO Varun Krishna called it the company's most profitable quarter in four years. However, headline figures fell short of some analyst expectations, with GAAP EPS of $0.08 missing the $0.11 estimate and revenue slightly below the $2.81 billion projection.
Operating leverage continued to strengthen, with adjusted EBITDA margin expanding to 27.7% from 12.0% a year earlier. The mortgage contribution margin also improved significantly, rising to 52.2% from 36.0%. This efficiency gain reflects Rocket's scale advantages compared to its nonbank lending peers.
In the competitive landscape, Rocket's performance stands out. UWM Holdings (NYSE: UWMC) posted a net loss of $451.9 million, while loanDepot (NYSE: LDI) recorded a smaller loss of $6.6 million. Rocket delivered adjusted EBITDA at 4.1 times UWM's level on origination volume that was 24% higher. The company's direct-to-consumer channel delivered a gain margin of 4.13%, compared to 0.69% for Rocket Pro and 0.19% for correspondent lending.
Following the earnings release, several analysts adjusted their price targets. Bank of America, Benchmark, RBC Capital Markets, Wells Fargo, and Stephens all reduced their targets while maintaining their ratings. The new average target of $17 represents a 23.9% upside from Friday's closing price. Wells Fargo analyst Donald Fandetti noted that Rocket "continues to gain market share," though he cautioned that elevated 10-year Treasury yields remain a limiting factor for the mortgage market.
Interest rates continue to influence the sector. Freddie Mac reported the average 30-year fixed mortgage rate at 6.69% on August 6, up slightly from 6.66% the prior week. Investors will be watching upcoming economic data, including July CPI figures due Wednesday and PPI on Thursday, which could impact Treasury yields and mortgage demand. Early estimates suggest headline CPI at 3.4% and core CPI at 2.5% year-over-year.
Rocket projects third-quarter adjusted revenue between $2.5 billion and $2.7 billion, with the midpoint 5.8% lower than Q2. The company's adjusted net income stands at $441 million, while tax-effected net income after add-backs totals $209 million. Rising inflation or higher Treasury yields could weaken purchase demand and postpone refinancing activity, but Rocket's record market share and strategic servicing sales provide a buffer in a challenging environment.
