Morgan Stanley Resumes Coverage of Rocket Companies with Cautious View

Morgan Stanley has resumed coverage of Rocket Companies with a cautious view, citing strategic upside from the acquisition of Mr. Cooper but mostly in the price. The $9.4B all-stock deal agreed in March is seen as positive, but the market is already factoring in the value. Morgan Stanley believes the deal will take time to realize full benefits and expects a cautious approach from management.

Morgan Stanley has resumed coverage of Rocket Companies (NYSE: RKT) with a cautious outlook, following a $9.4B all-stock acquisition of Mr. Cooper in March. The investment bank, led by analyst Jeffrey Adelson, views the deal as a strong strategic fit, but expects most of the near-term upside to be already priced into the stock [1].

Adelson highlights that Rocket's digital platform and high client retention can leverage Mr. Cooper's $1.5T servicing book, creating a powerful strategic flywheel for Rocket's origination engine. However, the analyst believes that the market has already factored in much of the deal's value, and the current premium is at its widest level in 4.5 years.

Morgan Stanley has assigned an Equal-weight rating to RKT with a $16.0 price target. The rating aligns with Seeking Alpha's Quant rating and the average sell-side analyst rating of Hold. The stock was down 3.47% during Thursday morning trade, closing at $18.94.

The analyst cautions that integrating two acquisitions simultaneously elevates operational risk, and the challenging mortgage and housing market backdrop adds to the uncertainty. Therefore, Morgan Stanley prefers to wait for a better entry point.

References:
[1] https://seekingalpha.com/news/4485444-morgan-stanley-resumes-coverage-of-rocket-companies-with-cautious-view