Rocket Slides As Analyst Cuts Rating Following Reddit-Fueled Rally

Shares of Rocket Companies (RKT) are under pressure on Wednesday after soaring the day before as the Reddit forum that led the short squeeze in the shares of GameStop (GME) turned its attention to the stock. Arguing that the risk/reward is more balanced following the 71% rally and 109% rise since last week's fourth-quarter results, RBC Capital analyst Daniel Perlin downgraded Rocket Companies to Sector Perform.

REDDIT-FUELED RALLY: The online mortgage provider's shares soared over 70% on Tuesday with no apparent news. Rocket is one of the most heavily shorted names by hedge funds and seems to have attracted attention from WallStreetBets, the Reddit forum that led the short squeeze in the shares of GameStop earlier this year. Short interest as a percent of the Rocket float stands at 46%, according to S3 partners, Bloomberg reported. Rocket Companies is the parent of Rocket Mortgage and Quicken Loans.

In a research note on Tuesday, Wells Fargo analyst Donald Fandetti said he had received investor inquiries about the move higher in Rocket shares, which he attributed to "retail/Reddit activity like we've seen in other stocks recently" as well as the stock's high short interest. While the company's recently reported fourth-quarter results were "good," they were "not good enough to support this move" on the third trading day after earnings, said Fandetti, who added that he expects the shares to normalize and "again trade on fundamentals" at some point. He kept an Equal Weight rating on the stock.

MOVING TO THE SIDELINES: RBC Capital analyst Daniel Perlin downgraded Rocket Companies to Sector Perform from Outperform with an unchanged price target of $30. The analyst believes the risk/reward is "more balanced" following the stock's 71% rally on Tuesday and 109% rise since last week's fourth-quarter results. Further, Perlin thinks the risk/reward "skews to the downside in the near-term." Mortgage demand is expected to continue, but this is now reflected in the stock, he added, noting that positive operating leverage is also expected to remain near-term. Nonetheless, the analyst believes management’s willingness to share in the near-term outperformance, given the strength in the mortgage market, bodes well for additional capital allocation opportunities in the future.

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Alexis Renault 1 month ago Member's comment

So who are the worse market manipulators? Hedge Funds? Or the WallStreetBets group on reddit?