Rocket Companies Inc

Rocket Companies (NYSE: RKT) is a Detroit-based holding company consisting of personal finance and consumer service brands.

Rationale for Valuation – Avoid at USD 23.91

• The operating landscape remains highly volatile with the continuing uncertainty due to Covid-19 pandemic.
• The outlook for the Company seems dim in the long-term due to the continued impact on International travel and may face further closure.
• In FY20, the Company had a Debt/Equity ratio of 55.33x, which was higher than the industry median.
• From the technical standpoint, 14-day RSI stood at ~51.82 level, and 20-Day SMA was USD 25.14, which means the stock price could decline in the short term.

Key Risks

• The Company has a risk of delivering results as anticipated post-merger.
• The risk of lockdowns and restrictions may persist for an uncertain duration of time, impacting the earnings of the Company.
• It is also exposed to risk regarding financial, political and legal conditions.

Financial Highlights (for the year ended 31 December 2020 (FY20), as on 25 February 2021)

(Source: Company Website)

• The Company’s total revenue for FY20 increased by 208% to USD 15.7 billion, compared to USD 5.1 billion in FY19, with an increase in net income of 948% YoY and adjusted net income of 526% YoY.
• The Company generated a record loan origination volume of USD 320.2 billion and a net rate lock volume of USD 338.7 billion, representing year-over-year improvements of 121% and 123%, respectively.
• The Company remains in a strong liquidity position, with total liquidity of USD 7.7 billion.
• Over the 12 months ended 31 December 2020, the net client retention rate was 91%.

Six Months Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

In Q1 FY21, the Company expects the loan volume to be in between USD 98 billion and USD 103 billion, along with an improvement in their gain on sale margins of 3.60% to 3.90%. Recently, the company launched a new digital platform, providing real estate agents with real-time updates on their clients' mortgages' status 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. Moreover, the Board declared a special dividend of USD 1.11 per share, supported by significant growth. It will fund the special dividend from cash distributions of around USD 2.2 billion.  

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. However, the Covid-19 pandemic continued to create operational challenges. Notwithstanding, the urgency of climate change can drive the global demand for clean and flexible sources of energy in the future. In the future, the Company may face emerging headwinds and cost pressures. The stock made a 52-week low and high of USD 16.73 and USD 41.10, respectively.

Based on the various risk factors discussed above, we have given an "Avoid" stance on Rocket Companies Inc at the closing market price of USD 23.91 (as on 26 March 2021), while we will revisit our stance when the price and Covid-19 situation would settle.

CM Life Sciences Inc

CM Life Sciences Inc (NASDAQ: CMLF) is a United States-based Company, which was founded to take advantage of a dynamic life science sector.

Rationale for Valuation – Avoid at USD 14.13

• The Company is still in the initial stages of business scalability and has not generated any revenues.
• CM Life Sciences II Inc entered into the Merger Agreement with SomaLogic.
• From the technical standpoint, 20-day SMA stood at around USD 16.56, which means the stock price could decline in the short term.

Key Risks

• Excessive competition in the industry could affect the revenue and profitability of the Group.
• Macroeconomic headwinds are expected in the short run with the global spread of the Covid-19 virus.

Recent News

On 28 March 2021, CM Life Sciences II Inc. had executed an agreement and plan of merger with SomaLogic, Inc. and the other parties. The business combination was approved by the board of directors of CM Life Sciences II and SomaLogic. It is expected to close in Q3 FY21.

Three Months Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Conclusion

There is no financial performance unveiled by the Company currently. CM Life Sciences II Inc entered into the definitive agreement with SomaLogic. SomaLogic shareholders will receive common stock of CM Life Sciences II and the deal is expected to close in the third quarter of 2021. The Company is in the development stage, and it relied on the cash balances and fundraised from the stock market for all the operational activities. Overall, it remains difficult to provide forward-looking guidance due to the ongoing uncertainty. The stock made a 52-week low and high of USD 9.66 and USD 27.18, respectively.

Based on the factors as highlighted above, we have given an “Avoid” recommendation on CM Life Sciences Inc at the closing price of USD 14.13 (as on 26 March 2021), while we will keep a close watch on all the activities pertaining to transaction completion and detailed business information availability. 

*All forecasted figures and Industry information have been taken from Refinitiv, Thomson Reuters.

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