Rocket Companies

Rocket Companies (NYSE: RKT) is a Detroit-based holding company consisting of personal finance and consumer service brands. It provides industry-leading real estate, mortgage and financial services, empowering consumers through entities including Rocket Homes, Rocket Auto and Rocket Mortgage.

Key highlights 

• Outlook for Q1 2021: The management has shared its perspective for Q1 2021, where they expect to close the loan volume in betweenUSD 98 billion and USD 103 billion, an increase of 90% to 99% compared to USD51.7 billion in the first quarter of 2020, along with an improvement in their gain on sale margins of 3.60% to 3.90%, compared to 3.25% in the first quarter of 2020. 

• Launched a new digital platform: Recently, the companylaunched a new digital platform, providing real estate agents with real-time updates on the status of their clients' mortgages and the ability to assist in the mortgage process. More than 25,000 real estate agents have signed up for this platform following its launch in October 2020.

• Robust Liquidity:The company remain in a strong liquidity position, with total liquidity of USD 7.7 billion, which includes USD 2.0 billion cash-on-hand, USD 2.8 billion of undrawn lines of credit, USD 0.3 billion of undrawn MSR lines, and USD 2.6 billion of corporate cash used to self-fund loan originations. 

Financial overview of FY2020

Source: Company 

• In FY2020 the company’s total revenue grew to USD 15.7 billion, increased by 208%, compared to USD 5.1 billion in the previous corresponding period.
• The company generated record loan origination volume of USD 320.2 billion and net rate lock volume of USD 338.7 billion, which represented year-over-year improvements of 121% and 123%, respectively.
• Net income for FY2020 stood at USD 9.4 billion, against USD 0.9 billion in FY2019. The rise in net income was primarily due to higher revenue, partially offset by higher G&A expenses and higher other expenses. 

Risks associated with investment

The company is not immune to the risks present in the industry. Some of the highlighted risks include adverse economic conditions, which may decrease the estimated value of the collateral securing loans and leases, and could affect its business and financial condition. 

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The company furnished record-breaking fourth quarter and full-year 2020 results, demonstrating the sheer power of the technology platform it has built and refined for more than two decades. Amid the pandemic, the company successfully drove growth in every segment of its business. As a result of its highly profitable and capital-light business model, the company announced a significant special dividend of USD 1.11 per share payable on March 23, 2021. The stock made a decent run in the recent past and is due for correction. We have valued the stock using EV/Sales based valuation and arrived at a higher double-digit downside (in % terms). Moreover, the stock has generated a handsome return of 37.84% in the last one week.  Hence, we recommend the investor to “Sell” the stock and take out the profit at the closing price USD 28.01 on March 3, 2021. We have considered OneMain Holdings Inc, Ally Financial Inc, NMI Holdings, etc. as the peer group for the comparison.

1-Year Price Chart (as on March 03, 2021). Source: Refinitiv (Thomson Reuters)

SunPower Corporation

SunPower Corporation (NASDAQ: SPWR) designs, manufactures and delivers top-notch solar panels and systems for residential, business, government and utility customers. The group is headquartered in San Jose, Calif., SunPower has offices in North America, Europe, Australia, Africa and Asia.

Key Updates:

• Recently, the group announced the launch of mySunPower™ application, which provides homeowners to review and manage their energy generation, consumption, and battery storage settings from a mobile device. The application enables the users to control their battery settings in a convenient way and allows them to set their battery to minimize energy costs, lower their carbon footprint, or preserve power during power outages. Customers can view the immediate impact of their energy choices, which includes the effects of changing weather conditions, adjustments in battery settings, or even the use of small appliances such as a microwave in real time.
• During the fourth quarter of FY20, the company added more than 13,000 customers, while the total customer base stood at more than 3,51,000. The group reported a backlog of more than 180 MW of new homes.

FY20 Financial Highlights:

• SPWR announced its quarterly results, wherein the company posted revenue of USD 1,124.829 million, as compared to USD 1,092.226 million in FY19. The increase was driven by higher revenue from solar power systems, components and other segment (USD 1,103.823 million versus USD 1,063.150 million in FY19), partially offset by a decrease in income from residential leasing and solar services.
• The company reported a higher cost of revenue of USD 957.702 million, as compared to USD 928.748 million, due to higher costing from Solar power systems, components, and other segment (USD 946.164 million, higher than USD 913.299 million in FY19). Gross profit was recorded at USD 167.127 million versus USD 163.478 million in FY19).
• Due to a surge in total operating expenses (USD 173.139 million versus USD 102.905 million in FY19) and resulted to a slide in operating income at USD 6.012 million versus USD 60.573 million in FY19.
• The group reported a net income of USD 474.026 million, as compared to a net loss of 7.721 million, a year ago.
• The group reported cash and cash equivalents of USD 232.765 million, while total assets were recorded at USD 1,646.482 million.

FY20 Income Statement Highlights (Source: Company Report)

Risks: The COVID-19 pandemic had adversely impacted the company’s business, operations, financial performance, and the operations and financial performance of many of its suppliers, dealers, and customers. A further outbreak of the pandemic may harm its operations again. Furthermore, they are highly dependent on Maxeon Solar as a sole-source supplier for certain critical components and products, including solar cells and modules. Any supply interruption or delay could adversely affect their business.

Stock Recommendation:

The group caters to the US residential solar market, and the long-term outlook remains positive, supported by growing adoption of solar and related storage products, which is a key positive. Moreover, the group is extending its platform to reach a wider partner and customer base. The stock of SPWR appreciated ~546% and ~464%, respectively, in the last nine months and one year, respectively. On the valuation front, the stock of SPWR is trading at a forward EV to EBITDA multiple of 44.2x, which is significantly higher compared to the industry (Renewable Energy) median of 14.4x. Hence, recommend an ‘Expensive’ rating on the stock at the closing price of CAD 32.95 on March 03, 2021.

SPWR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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