Last week, the rate for the most common kind of mortgage rose substantially. The average rate on the 30-year fixed mortgage surged on Friday, indicating a 24 basis points rise to 4.95%. It is 164 basis points higher than the year-ago value. With both rates and prices being at significantly high levels, the median mortgage payment is now more than 20% higher than a year ago.
The housing market spring selling season is likely to be burdened by the rate increases, as the surging rates could limit what buyers can bid. Moreover, Ian Shepherdson, chief economist and founder of research consulting firm Pantheon Macroeconomics, has predicted existing home sales to drop 25% between February and the end of summer.
Given this backdrop, we believe it might be best to avoid the fundamentally weak mortgage stocks Rocket Companies, Inc. (RKT), UWM Holdings Corporation (UWMC), and loanDepot, Inc. (LDI).
Rocket Companies, Inc. (RKT)
RKT engages in the tech-driven real-estate business, mortgages business, and e-commerce business in the United States. The company’s offerings include Rocket Mortgage, a mortgage lender. It operates through the two broad segments of Direct-To-Consumer and Partner Network.
On December 22, Moore Kuehn, PLLC, a securities law firm located on Wall Street, announced that it was investigating RKT on the grounds of a potential violation of fiduciary duties. On December 21, Bragar Eagel & Squire, P.C., a shareholder rights law firm, announced that it is investigating claims against RKT on similar grounds.
For the fiscal fourth quarter ended December 31, RKT’s adjusted revenues decreased 49% year-over-year to $2.44 billion. Adjusted net income and adjusted EPS declined 72.3% and 72.4% from the prior-year period to $637 million and $0.32.
The consensus EPS estimate of $0.20 for the fiscal quarter ending March 2022 indicates a 77.5% year-over-year decrease. Likewise, the consensus revenue estimate for the same quarter of $2.20 billion reflects a decrease of 51.9% from the prior-year quarter.
The stock has declined 52% over the past year and 20.4% year-to-date to close yesterday’s trading session at $11.14.
RKT’s POWR Ratings reflect this bleak outlook. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
RKT has a Growth and Sentiment grade of F and a Stability grade of D. In the 111-stock Financial Services (Enterprise) industry, it is ranked #65. The industry is rated D.
Click here to see the additional POWR Ratings for RKT (Value, Momentum, and Quality).
UWM Holdings Corporation (UWMC)
UWMC operates as a residential mortgage lending business in the U.S. The company engages in the origination of mortgage loans, primarily conforming and government loans, through the wholesale channel.
UWMC’s total revenue net decreased 66.7% year-over-year to $605.46 million in the fiscal fourth quarter ended December 31. Adjusted EBITDA declined 84.8% from the prior-year period to $206.89 million, while adjusted net income came in at $177.12 million, down 83.1% from the same period the prior year.
Street EPS estimate for the quarter ending March 2022 of $0.07 indicates an 82.9% year-over-year decrease. Likewise, Street revenue estimate of $467.68 million for the same period reflects a decline of 60.7% from the same period the prior year.
UWMC’s shares have declined 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 Strong Sell in our POWR Rating system.
UWMC has an F grade for Stability and Sentiment and a D grade for Value. It is ranked #51 out of the 52 stocks in the Consumer Financial Services industry. The industry is rated D.
To see the 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-conforming and prime jumbo, federal assistance residential mortgage, and home equity loans.
For the fiscal fourth quarter ended December 31, LDI’s adjusted total revenue declined 42.2% year-over-year to $723.64 million. Adjusted net income and adjusted EBITDA came in at $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. Likewise, Street expects revenue to decrease 53.2% from the prior-year period to $580.92 million.
The stock has declined 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 grade of D. It is ranked #43 in the Consumer Financial Services industry.
Click here to see the 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, RKT has declined -20.57%, versus a -4.61% rise in the benchmark S&P 500 index during 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.
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