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 it 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 factor 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 boosted its price target to $10 a share, which implies a more than 24% potential return from Tuesday’s close. — CNBC’s Michael Bloom contributed reporting

Rocket Companies amid a ‘tough mortgage backdrop,’ Wells Fargo says