According to the Zhitong Finance APP, among the recently announced financial reports of consumer finance institutions, Goldman Sachs released a research report optimistic about Rocket (RKT.US) and UWM Holdings (UWMC.US). In the context of a slowdown in the consumer loan industry, the bank gave Rocket a &#34;neutral&#34; rating and raised the target price from $14 to $15; secondly, the bank gave UWMC a &#34;neutral&#34; rating and maintained the target price at $7.
Rocket
Rocket reported decent fourth-quarter performance, although revenue was slightly weak due to a decline in sales and an increase in sales revenue (although we note that Wall Street expectations were higher than its guidance), but this was offset by lower expenses—both wages and general administrative expenses were below expectations.
The focus is on the first-quarter guidance, where the midpoint of its guidance range is below consensus expectations due to slow growth in January (between $1.175 billion and $1.325 billion—with a median of $1.25 billion, while the Visible Alpha consensus expectation is $1.3 billion), and expenses are expected to be higher (first-quarter expenses are expected to increase by $100 million year-on-year, implying reaching $1.185 billion, while the Visible Alpha consensus expectation is $1.133 billion), of which $65 million of the $100 million increase is driven by marketing, and another $35 million is driven by variable costs associated with the increase in volume. However, due to the expected decline in data released by other mortgage lenders, and Rocket noting better-than-expected performance in February with optimistic signs in March, the stock performed better than expected.
Looking ahead, although 10 indicators are mixed, Goldman Sachs believes there are several positive reasons, including 1) Despite revenue indicators being below market expectations, Rocket pointed out that their internal procurement channels grew by 10%, and their revenue guidance is driven by sales volume, as they expect first-quarter sales revenue to be flat with the fourth quarter (and the revenue guidance for the first quarter of 2024 is mainly driven by better sales revenue), indicating that Rocket continues to gain market share despite industry forecasts predicting a quarter-on-quarter decline of about 20%.
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Efficiency improvements are beginning to show, as the number of employees decreased year-on-year in the fourth quarter while sales volume grew by about 47%. Although expenses are high, this is due to variable costs associated with volume and marketing investments (first-quarter rebranding is about $50 million, Rocket's salary is $10 million to $15 million, Rocket noted this is profitable marketing, with about $35 million in variable costs, and revenue grew by 7% year-on-year). Additionally, marketing investments before the spring buying season should help drive Rocket's continued share growth in 2025.
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Driven by various factors, Rocket's procurement market share is expected to grow to 4% in 2024. This includes integrating 25,000 brokers into their technology platform, reducing loan processing time by 30%, expanding the procurement field, adding 300,000 new customers, and leveraging service channels. It believes there is an opportunity for additional share growth in 2025, even in a still sluggish transaction volume environment, which should support revenue growth. Therefore, overall, while the first quarter is an investment quarter around new branding activities, Goldman Sachs believes Rocket will occupy a larger market share in the mortgage market in the medium term
At the same time, we will also see improvements in the efficiency of operating expenses (excluding marketing).
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UWM Holdings
UWM Holdings' fourth-quarter performance is mixed, as loan income that met expectations was offset by higher core expenses. Core expenses (USD 500 million, with market expectations generally at USD 420 million) exceeded expectations due to rising wages and commissions, as well as increased loan production costs. Additionally, considering interest rate fluctuations, UWMC's MSR write-down was higher than expected (USD -160 million, while the market expected USD -49 million), although Goldman Sachs noted that this situation could reverse in the first quarter due to interest rate changes. The focus of external attention is the company's guidance for the first quarter of 2025, which indicates that the company's loan volume will reach USD 28 billion to USD 35 billion (market expectation is USD 36.1 billion), and the sales profit margin will increase by 90 to 115 basis points (market expectation is 110 basis points). At the midpoint of this range, the sales profit is USD 323 million, while the previous consensus was USD 396 million.
Since the market digested the mixed fourth-quarter results and outlook, the company's stock has performed poorly (-8.20%, while mortgage institutions were -3.30%) since the earnings report was released. Looking ahead, although the company continues to perform well, Goldman Sachs' conclusions are somewhat mixed because:
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While UWMC is optimistic about loan issuance, its first-quarter volume guidance is below expectations. Given the overall slowdown in the mortgage market, Goldman Sachs believes this may limit the recent upside potential for revenue. In other words, if interest rates decline over time, UWMC will continue to have solid option value, as 87% of mortgage rates are at 6%.
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Expenses are higher than expected, although UWMC emphasizes that it believes it can increase an additional USD 100 billion in loan volume without increasing fixed costs, it noted that it expects to continue investing in the business, which may lead to increased expenses by 2025.
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Despite some weakness in loan origination, UWMC raised its sales profit margin range from the previous few quarters' 85-110 basis points to 90-115 basis points. If the sales profit margin can trend upward, this will help offset some of the adverse effects from the slowdown in loan growth. Therefore, when considering these factors comprehensively, UWMC remains well-positioned to take advantage of a more favorable mortgage environment, but Goldman Sachs believes it needs to see interest rates stabilize at more favorable levels (10-year interest rates at 3.75% - 4.0%) to leverage its business model
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Goldman Sachs is optimistic about Rocket and UWM Holdings, two consumer finance stocks, despite the slowdown in the consumer loan industry. Rocket received a "Neutral" rating, with the target price raised from $14 to $15, despite slightly weak revenue, but expenses were below expectations. UWMC maintains a "Neutral" rating with a target price of $7. Goldman Sachs believes that Rocket can still gain market share amid the industry's decline, and efficiency improvements are beginning to show

- Goldman Sachs has a neutral rating on Rocket (RKT.US) and UWM Holdings (UWMC.US), raising Rocket's target price from $14 to $15 while maintaining UWMC's at $7.  
- Rocket reported mixed Q4 results with slightly weak revenue offset by lower expenses, while UWM's performance was hampered by higher core costs and a larger-than-expected MSR write-down.  
- Looking ahead, Rocket is expected to gain market share despite a challenging environment, while UWMC's outlook is mixed, with lower loan volume guidance potentially limiting revenue growth.

As the U.S. consumer finance industry slows down, Goldman Sachs is optimistic about these two U.S. stocks