Market forces rained on the parade of Rocket Companies, Inc. (NYSE:RKT) shareholders today, when the analysts downgraded their forecasts for next year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.
Following the latest downgrade, the eight analysts covering Rocket Companies provided consensus estimates of US$5.4b revenue in 2023, which would reflect a disturbing 34% decline on its sales over the past 12 months. Statutory earnings per share are supposed to nosedive 92% to US$0.075 in the same period. Prior to this update, the analysts had been forecasting revenues of US$6.0b and earnings per share (EPS) of US$0.41 in 2023. Indeed, we can see that the analysts are a lot more bearish about Rocket Companies' prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
The consensus price target fell 8.5% to US$7.68, with the weaker earnings outlook clearly leading analyst valuation estimates. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on Rocket Companies, with the most bullish analyst valuing it at US$14.00 and the most bearish at US$4.50 per share. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that sales are expected to reverse, with a forecast 28% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 18% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 4.5% per year. It's pretty clear that Rocket Companies' revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Rocket Companies' revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Rocket Companies.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Rocket Companies analysts - going out to 2024, and you can see them free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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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.
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