Why Morgan Stanley’s Upgrade Put Rocket Companies Back on Investor Radar

Morgan Stanley’s upgrade of Rocket Companies (RKT) has drawn fresh attention to the stock, coming just as housing data softens and the company prepares to report its second quarter results.

The firm highlighted valuation, operating leverage and AI driven demand in its thesis, after the stock had fallen roughly 25% year to date and about 40% from its earlier peak before the upgrade.

At the current share price of $14.54, Rocket Companies has seen its short term momentum pick up with a 30 day share price return of 9.98%, even as the 90 day share price return is down 12.57% and the year to date share price return is down 26.86%. The 3 year total shareholder return of 46.47% contrasts with a 5 year total shareholder return that is slightly negative. This suggests sentiment has improved in recent years but remains sensitive to changing views on mortgage demand and credit risk, which helps explain why Morgan Stanley’s upgrade and the recent Redfin housing data are drawing so much attention.

If you are weighing Rocket Companies against other ideas in the mortgage and real estate technology space, it can be useful to see how other AI focused financial stocks are trading through a dedicated screener, including 31 AI small caps.

After Morgan Stanley’s call and a sharp rebound off the lows, Rocket Companies is no longer clearly washed out. Do the current numbers and recent housing data still tilt the risk reward balance toward buyers, or not?

Most Popular Narrative: 27.5% Undervalued

Against Rocket Companies' last close at $14.54, the most followed narrative frames a fair value near $20.05, which implies a meaningful valuation gap built on specific growth and margin assumptions.

The integration of Redfin and the planned acquisition of Mr. Cooper are expanding Rocket's customer reach and local agent network, which is unlocking new cross sell and purchase opportunities, potentially driving higher revenues and customer lifetime value in the long term.

Curious what sits behind that $20 fair value anchor? The narrative refers to faster earnings growth, materially higher margins, and a richer profit multiple than the broader diversified financials space. The exact mix of those assumptions is where the story gets interesting.

Result: Fair Value of $20.05 (UNDERVALUED)

However, Rocket Companies’ narrative still leans on optimistic assumptions, and tougher housing affordability or faster fintech competition could quickly challenge those margin and growth expectations.

Another View: What Rocket Companies’ P/S Ratio Is Telling You

While the fair value narrative for Rocket Companies points to a $20.05 anchor, the current P/S ratio of 4.6x paints a different picture. It sits well above both the US Diversified Financial industry at 2.3x and peers at 2x, yet still below a fair ratio estimate of 5.6x.

In practical terms, that gap means you are paying a clear premium versus the sector and peer group, with only a modest cushion if the market shifts closer to the fair ratio instead of today’s richer multiple. This raises the question of how much optimism is already reflected in the price.

Next Steps

Given the mix of optimism and concern around Rocket Companies, this is a moment to move quickly, review the numbers, and decide where you stand. Start with the 3 key rewards and 2 important warning signs.

Looking for more investment ideas beyond Rocket Companies?

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• Target companies that appear mispriced relative to fundamentals by running a focused screen through 47 high quality undervalued stocks.
• Strengthen your income portfolio by hunting for reliable cash payers using the 8 dividend fortresses.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.