Last week, the rate for the most common type of mortgage increased significantly. The average 30-year fixed-rate mortgage rate jumped on Friday, indicating a rise of 24 basis points to 4.95%. It is 164 basis points higher than a year ago. With rates and prices at dramatically high levels, the median mortgage payment is now more than 20% higher than a year ago.
The housing market the spring sales season is likely to be busy by rate increases, as soaring rates could limit what buyers can bid. Additionally, Ian Shepherdson, chief economist and founder of research consultancy Pantheon Macroeconomics, predicted a decline in sales of existing homes. 25% between February and the end of summer.
Against this backdrop, we think it would be best to avoid fundamentally weak mortgage stocks Rocket Companies, Inc. (RKT), UWM Holdings Corporation (UWMC), and LoanDepot, Inc. (LDI).
Rocket Companies, Inc. (RKT)
RKT is engaged in technology-driven real estate business, mortgage lending and e-commerce business in the United States. The Company’s offerings include Rocket Mortgage, a mortgage lender. It operates through the two major segments of Direct-To-Consumer and Partner Network.
On December 22, Moore Kuehn, PLLC, a Wall Street securities law firm, announced that it was investigating RKT for a potential breach of fiduciary duties. On December 21, Bragar Eagel & Squire, PC, a shareholder rights law firm, announced that it was investigating claims against RKT on similar grounds.
For the fourth fiscal quarter ended Dec. 31, RKT’s adjusted revenue fell 49% year-on-year to $2.44 billion. Adjusted net income and adjusted EPS decreased 72.3% and 72.4% from the prior year period to $637 million and $0.32.
Consensus PES the $0.20 estimate for the fiscal quarter ending March 2022 indicates a 77.5% year-over-year decrease. Similarly, the consensus revenue estimate for the same quarter of $2.20 billion reflects a 51.9% decline from the prior year quarter.
The stock is down 52% over the past year and 20.4% year-to-date to close yesterday’s trading session at $11.14.
RKT POWR Rankings reflect these bleak outlooks. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
RKT has a growth and sentiment rating of F and a stability rating of D. In the 111-stock Financial Services (Corporate) industry, it is ranked #65. The industry is rated D.
Click here to see additional POWR ratings for RKT (Value, Dynamics, and Quality).
UWM Holdings Corporation (UWMC)
UWMC operates as a residential mortgage lending business in the United States. The Company engages in the origination of mortgage loans, primarily conforming and government loans, through the wholesale channel.
UWMC’s total net revenue decreased 66.7% year-over-year to $605.46 million in the fourth fiscal quarter ended December 31. 83.1% compared to the same period the previous year.
The Street EPS estimate for the quarter ending March 2022 of $0.07 indicates an 82.9% year-over-year decrease. Similarly, Street’s revenue estimate of $467.68 million for the same period reflects a 60.7% decline from the same period a year earlier.
Shares of UWMC are down 42.8% over the past year and 24% year-to-date to close yesterday’s trading session at $4.50.
It’s no surprise that UWMC has an overall F rating, which translates to a strong sell in our POWR rating system.
UWMC has an F rating for stability and sentiment and a D rating for value. It is ranked No. 51 out of the 52 stocks in the Consumer Financial Services industry. The industry is rated D.
To view additional POWR ratings for Growth, Momentum, and Quality for UWMC, Click here.
LoanDepot, Inc. (LDI)
LDI originates, finances, sells and services residential mortgage loans. The Company’s offerings include conventional agency-compliant and first-ranking mortgages, federal assistance residential mortgages and home equity loans.
For the fourth fiscal quarter ended December 31, LDI’s adjusted total revenue decreased 42.2% year-over-year to $723.64 million. Adjusted Net Income and Adjusted EBITDA were $28.91 million and $63.75 million, down 92.3% and 88% from the prior year quarter.
Analysts expect LDI’s EPS to decline 94.9% year-over-year to $0.05 for the fiscal quarter ending March 2022. Similarly, Street expects that revenue decreased 53.2% from the prior year period to $580.92 million.
The stock is down 78.2% over the past year and 11.3% year-to-date to close yesterday’s trading session at $4.26.
LDI has a growth and stability rating of D. It is ranked #43 in the consumer financial services industry.
Click here to see additional POWR ratings for Value, Momentum, Sentiment and Quality for LDI.
RKT shares were trading at $11.12 per share on Thursday afternoon, down $0.02 (-0.18%). Year-to-date, the RKT is down -20.57%, compared to a -4.61% rise in the benchmark S&P 500 over the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. Continued…