Shares of Rocket Companies have plummeted more than 42% this year, but the stock is due for a comeback despite a “tough mortgage backdrop,” according to Wells Fargo. Analyst Donald Fandetti upgraded shares of the company to overweight from equal weight, saying in a note to clients Wednesday that the company will continue to take market share from its peers. “We believe RKT is a well managed and innovative company, positioned to take market share over the long term in the mortgage business,” he wrote. “Their technology is a key competitive advantage. We believe the market will award RKT a multiple reflective of a top-tier financial company, particularly given the high-teens ROE we project.” Shares of Rocket have taken a big hit as soaring mortgage rates slow housing purchases and refinance activity. The average 30-year fixed-rate mortgage was last at 5.74% , according to the Mortgage Bankers Association. To be sure, Rocket may struggle as it works to develop its purchase origination business, which many larger banks have a leg up on. But according to Fandetti, Rocket is the “most efficient operator” in the space, a move that can help the company outlive some of its peers. “While the residential mortgage market remains extremely challenging, we see RKT as a beneficiary of the dislocation, and interest rate expectations seem to have less upside tail risk,” Fandetti wrote. Along with the upgrade, Wells Fargo upped its price target on the stock to $10 a share, which implies a more than 24% potential return from Tuesday’s close. — CNBC’s Michael Bloom contributed reporting
