Rocket Companies, Inc.

RKT Details

Launches Clear HOI Platform: Rocket Companies, Inc. (NYSE: RKT) is a Detroit-based technology company that provides simple, fast and trusted digital solutions for complex transactions. The company mainly delivers innovative technology for smarter lending processes. As on 14 December 2020, market capitalization of the company stood at ~$43.54 billion. Recently, the company’s subsidiary, Nexsys Technologies, released its Clear HOI platform to mortgage lenders nationwide. This platform digitizes and automates the communication between mortgage lenders and home-owners insurance (HOI) companies, making the verification of insurance faster and reducing the opportunities for human error.

Achieves Significant Gains in Digitization: The company recently stated that the collaboration between Rocket Mortgage and Amrock (both subsidiaries of Rocket Companies, Inc.), has resulted in significant gains in the digitization of the mortgage closing as they delivered 90% of all digital closings with eNotes through the first three quarters of 2020. 

Q3FY20 Result Highlights: During Q3FY20, Rocket Companies generated a record closed loan origination volume of $89.0 billion and net rate lock volume of $94.7 billion, representing YoY growth of 122% and 101%, respectively. The company’s net income for Q3FY20 stood at $2,995 million, up 506% on pcp. As at 30 September 2020, the company had cash and cash equivalent of $3.49 million.

Q3FY20 Results (Source: Company Reports)

Outlook: For Q4FY20, the company expects its closed loan volume to be in the range of $88 billion and $93 billion, representing a growth of 73% to 83% compared to pcp. Gain on sale margins during Q4FY20 is expected to be between 3.80% and 4.10%, representing an improvement of 11% to 20% compared to 3.41% in Q4FY19.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock is currently inclined towards its 52-weeks low price of $34.42, offering a decent opportunity for accumulation. On the technical analysis front, the stock has a support level of ~$19.58 and resistance of ~$24.02. We have valued the stock using EV/Sales multiple based illustrative relative valuation and have arrived at a target price with an upside of low double-digit (in % terms). For the purpose, we have taken peers like OneMain Holdings Inc (NYSE: OMF), Santander Consumer USA Holdings Inc (NYSE: SC), Ally Financial Inc (NYSE: ALLY), etc. Considering the recent release of Clear HOI Platform, decent Q3FY20 results, modest outlook, current trading levels and valuation, we give a “Buy” recommendation on the stock at the closing price of $21.94, up by 5.18% on 14 December 2020.

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

NIO Inc.

NIO Details

Announced Pricing for ADS Offering: NIO Inc. (NYSE: NIO) is a china-based automobile company mainly involved in the designing, manufacturing, and selling of smart and connected premium electric vehicles (EV). As on 14 December 2020, the company’s market capitalisation stood at ~$57.59 billion. The company recently announced the pricing of the offering of 68 million American depositary shares, each representing one Class A ordinary share of the Company at a price of US$39.00 per ADS. The net proceeds from the ADS Offering will be utilized for the research and development of new products and next generations of autonomous driving technologies, expansion of service network, market penetration and for general corporate purposes.

November 2020 Highlights:  During the month of November 2020, the company delivered 5,291 vehicles, up 109.3% on pcp. Notably, the Cumulative deliveries of ES8, ES6 and EC6 as of November 30, 2020 has reached 68,634. During the September 2020 quarter, the company’s total Vehicle sales stood at RMB4,266.8 million, representing an increase of 146.1% on pcp.    

Quarterly Results (Source: Company Reports)

Outlook: For Q4FY20, total vehicle deliveries are expected to be in the range of 16,500 and 17,000 vehicles, representing an increase of approximately 100.6% to 106.7% from the same quarter of 2019. The company’s total revenues are likely to be between RMB6,258.7 million and RMB6,435.8 million, representing an increase of approximately 119.7% to 126.0% from the same quarter of 2019.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: Over the last three months, the stock of NIO has provided a return of ~118.79%. The stock is currently inclined towards its 52-weeks high price, demonstrating that the stock might have factored in most of the positives of the company. On the technical analysis front, the stock has a support level of ~$32.45 and a resistance level of ~$45.34.  We have valued the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a correction of low double-digit (in % terms). For the purpose, we have taken peers like Tesla Inc (NASDAQ: TSLA), Li Auto Inc. (NASDAQ: LI), and Xpeng Inc (NYSE: XPEV). Considering the substantial returns in the past three months, current trading levels and valuations, we suggest investors to wait for better entry levels. Hence, we give an “Expensive” rating on the stock at the closing price of $40.98, down by 2.38% on 14 December 2020.

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

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