Latest Reddit Stock Rocket (RKT) Gets Downgraded

Rocket Companies (NYSE: RKT) shares soared 71% on Tuesday as it has become the latest Reddit stock for traders looking to capitalize on a short-squeeze. One analyst is not sticking around to find out how the story ends - overnight RBC Capital analyst Daniel Perlin downgraded shares of the mortgage lender from Outperform to Sector Perform while maintaining his $30 price target.

"Following a strong quarter late last week and abnormal volatility in the shares today (RKT was up ~71% today and 109% since reporting last week), which has surpassed our Street-high target price of $30 per share, we are downgrading the stock to Sector Perform from Outperform, as we believe the risk/reward is now more balanced, if not skewed to the downside," Perlin commented in a note to clients.

While management’s recent Q1/21 guidance suggests that the mortgage market remains elevated, the analyst said this is now reflected in the stock.

"Despite this near-term outlook, with the stock now trading at ~25x a more normalized FY22 adjusted EPS estimate, we believe the demand is more than being captured in the current valuation," he added.

The analyst was positive on the company's move to declare a special dividend of $1.11 per share to holders of its Class A common stock, which it will fund from its cash of approximately $2.2 billion. According to Perlin, it shows the company's willingness to share in the overperformance. This, he said, bodes well for additional capital allocation opportunities in the future.

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