Rocket

Rocket reported somewhat disappointing earnings as rising mortgage rates pressured mortgage originators industrywide. Adjusted revenue was $2.76 billion, down sequentially from $2.94 billion last quarter, despite the spring selling season. Diluted earnings per share were $0.08.

Why it matters: Rocket's shares are trading at a high-single-digit percentage lower in after-hours trading on Aug. 6. While these were not impressive results, we think the market is overreacting as the weakness was primarily driven by market conditions and the firm's underlying position remains on solid ground. Closed mortgage loan origination volume was $39.2 billion while the firm's gain-on-sale margin came in at 3.11%, which was down from 3.22% last quarter. Notably, the firm's wholesale channel, Rocket Pro, saw an unusually low gain on sale margin of only 0.69%, compared with 1.08% in 2025. On the other hand, the firm's purchase and refinance market shares reached new highs of 6.2% and 14.3%, respectively, up from 5.5% and 12.2%, respectively, in the fourth quarter of 2025.

The bottom line: We will maintain our $17.20 fair value estimate for narrow-moat-rated Rocket. We see the shares as undervalued at the current price. We think the market is reacting too much to short-term movements in interest rates. We expect Rocket to continue to take market share in both purchase and refinance markets thanks to its scale and cost advantages, creating long-term secular growth for the company outside of cyclical results. That said, we highlight our Very High Uncertainty Rating for Rocket. While the acquisitions of Redfin and Mr. Cooper have mitigated Rocket's exposure to mortgage rates, they have not eliminated it. Rocket's performance from quarter to quarter will remain highly dependent on the path mortgage rates take.

Along with earnings, Rocket guided for third-quarter 2026 revenue to be between $2.5 billion and $2.7 billion, which seems reasonable given the current mortgage rate environment. That said, Rocket's actual third-quarter performance will be highly dependent on what happens to mortgage rates over the next two months.

We are reducing our fair value estimate for Rocket to $16.80 per share from $17.20, which translates to a 2026 price/earnings ratio of 47.8 times. The reduction is entirely from short-term mortgage origination volume projections as rates have risen in recent months, pressuring refinance volume. Our fair value estimate for Rocket is highly sensitive to mortgage loan volume assumptions, operating expense growth, and the projected “gain on sale margin” (the amount of revenue Rocket generates per loan as a percent of the principal).

In the medium term, we expect Rocket's mortgage origination volume to remain well below its 2021 highs. Rocket, like the industry as a whole, saw a sharp decline in volume as higher interest rates have impacted refinance activity across the United States, leading to weak results for years.

Rocket's mortgage volume has historically been disproportionately focused on refinance and mortgages from first-time buyers, two areas that have been hit particularly hard by current market conditions, and the firm has lost overall market share as a result. We do not see this as a sign that Rocket's competitive position has been impaired. Rocket's strategy is focused on retaining customers from one mortgage to the next, which inherently leads to high levels of refinance volume relative to its peers. As a result, the company's market share ebbs and flows with the level of industrywide refinance activity. That said, this effect has dimished in recent quarters, as the firm has been able to materially improve its position in new purchase mortgage loans.

Outside of cyclical trends and its recent acquisition of Mr. Cooper, we anticipate that Rocket will continue to gain market share as it benefits from the rapid expansion of its partner network and the increased willingness of consumers to engage with digital-only platforms for financial services. We project that Rocket’s loan volume will grow at an 18% CAGR from 2025 to 2030, though this growth will be heavily front-loaded due to its recent acquisition. We see the firm taking roughly 10.6% market share by 2030.

By sales channel, we expect Rocket’s gain on sales margin to remain roughly stable after normalizing from cyclical highs. We project Rocket’s gain on sale margins will see a small recovery in 2024, before stabilizing by 2027 at 4.3% for direct-to-consumer loans and 1.3% for mortgages through the partner network, in line with historical averages. This leads to our projection that Rocket’s revenue

ill grow at a 19.4% CAGR from 2025-30, inclusive of the impact from its recent acquisitions.

In our view, Rocket Companies has established a clear competitive advantage in its core mortgage origination business that will allow it to continue to increase its market share while maintaining returns on invested capital that are above its weighted average cost of capital when viewed on a through-the-cycle basis. Rocket benefits from being a completely digital mortgage originator, which allows it to rapidly increase or decrease its lending capacity with less impact on its margins while also providing its users with an industry-leading consumer experience. In order to support this quality consumer experience, Rocket maintains more control over the mortgage process than many of its competitors by providing appraisal, titling, and closing services through its Rocket Close subsidiary and retaining the servicing rights of the loans it makes. A smooth process, both before and after a loan has been made, has allowed Rocket to develop a strong brand reputation that it monetizes through repeat business and its partner network. Rocket’s mortgage model facilitates and benefits from the company’s increasing scale as it continues to gain market share in the mortgage industry.

At a basic level, Rocket differentiates itself by originating and servicing its mortgages entirely through its mobile app and website. In its direct-to-consumer mortgage lending segment, users access Rocket’s platform themselves and navigate the process electronically. Rocket has made substantial investments in automating the mortgage process and has been an industry leader in increasing its speed and removing pain points. Innovations like allowing prospective borrowers to provide their bank login information to allow Rocket to verify income through transaction data creates less work for the borrower while also reducing Rocket’s origination costs. A fully digital model also has the benefit of making Rocket less labor intensive than its competitors since there are fewer manual touchpoints in the loan process. The company trains its employees to specialize in a single step of the mortgage process instead of using generalist loan officers who are responsible for a docket of loans, creating an assembly line approach to mortgages. This model gives Rocket more flexibility to scale its loan capacity up or down since it requires fewer employees who typically require less training than their competitors. Demand for mortgages can vary widely from year to year or even quarter to quarter based on interest rates or the health of the economy. The ability to scale capacity up or down with less need to change labor levels allows Rocket to take advantage of spikes in volume. This provides Rocket with a cost structure advantage over its competitors as a direct result of its operating model.

Rocket also retains the mortgage servicing rights (MSRs) from the mortgages it makes and acts as a servicer as a core part of its business strategy. Keeping the servicing rights from its mortgages serves multiple strategic purposes, the most straightforward of which is that Rocket simply generates more revenue per mortgage. MSRs allow the servicing firm to keep a portion of the interest a mortgage borrower pays in exchange for servicing the underlying loan. When MSRs are sold the acquiring firm generates a return by offering less than the expected net present value of those interest payments. By not selling its MSRs, Rocket gets to keep their full value, at the cost of taking on all responsibilities of a servicer. However, Rocket gains more from acting as a servicer than simply higher revenue per loan.

Critically, retaining servicing rights also helps drive incremental business for Rocket. Rocket mortgage holders can use the mobile app to pay their bills, see home valuation estimates, and check rates. This creates constant touchpoints between Rocket and existing mortgage borrowers, so when a current customer decides to refinance their mortgage or purchase a new home Rocket is at the top of their mind. Most mortgage borrowers only compare a handful of firms, and the constant contact between Rocket and its existing borrowers gives it a key advantage in generating repeat business. The mobile app also gives Rocket the ability to proactively market to existing customers based on movements in interest rates or home prices. Rocket has become extremely adept at generating repeat business, giving it an advantage over its competitors. This can be seen in Rocket’s mortgage recapture rate, which was around 80% in 2025, nearly three times the industry average of 27%, based on Intercontinental Exchange’s Mortgage Monitor report.

High mortgage recapture rates are a key part of Rocket’s overarching strategy as refinance or second purchase mortgages from existing Rocket customers come with a much lower cost of acquisition. This was a core part of the strategic logic behind acquiring Mr. Cooper, which was the largest mortgage servicer in America. As a result of this purchase, Rocket ended 2025 as the servicer for more than 9 million loans with a total unpaid balance over $2.1 trillion, giving the company a large pool of potential repeat customers to build from.

Rocket’s ability to increase its market share and maintain its margins is the result of the cost efficiencies and scalability of its digital-only model, its strong reputation among mortgage borrowers, and its scale, which enables it to take its broad scope. Heavy investments in automation allow for more seamless information gathering during the origination process, and Rocket’s ownership of Rocket Close and its activities as a servicer help ensure a positive experience for its customers, which in turn drives its industry-leading retention rates, allowing Rocket to generate more lifetime revenue from a single customer than its competitors. As a result, in our view Rocket has achieved a narrow moat rating from its intangible assets and cost advantages.

If mortgage rates fall, Rocket's business will benefit significantly from higher mortgage refinance volume.

Rocket’s continued investments in automation and artificial intelligence could lead to further operating cost efficiencies.

Rocket has been able to sign major partnerships to expand its partner network. Additional deals like the ones with Morgan Stanley and Intuit’s Mint could further expand Rocket's sales channel.

Mortgage origination remains highly volatile. Macroeconomic factors outside of Rocket's control could lead to a sharp reduction in revenue.

Rocket's strength in refinance activity leaves it unusually exposed to interest rates relative to its peers, if interest rates rise again the firm's market share will likely fall.

Rocket has gone on an acquisition spree in 2025, creating the risk that if the firm's revenue and expense synergy goals cannot be achieved, shareholder value will be lost.