Owl Rock Capital Corporation (ORCC - Free Report) has been witnessing downward earnings estimate revisions of late. The Zacks Consensus Estimate for current-year bottom line of $1.34 per share has moved 5.6% south over the past 30 days, indicative of analysts’ bearish sentiment on the stock.
Let’s analyze what could be the reason for this pessimism.
Owl Rock Capital’s second-quarter 2020 earnings per share of 34 cents missed the Zacks Consensus Estimate by 8.1%. Moreover, the bottom line declined 19% year over year.
This downside was mainly due to the COVID-19-led turmoil in the financial markets. The quarter also witnessed an escalating expense level.
The company’s expenses have been increasing over the past few years, raising a persistent concern. In 2019 and during the first six months of 2020, the same rose 104% and 81% year over year, respectively. We expect the trend to continue due to steady investments. A rise in expenses might continue to put pressure on the margins.
On the recent earnings call, management also noted that due to a steep decline in LIBOR of late, the company is likely to witness pressure on its interest income in the third quarter before it flattens out.
Although Owl Rock Capital had a strong portfolio of investments in companies consisting of several new commitments, the metric has been declining since 2019. In the first six months of 2020, the same declined 64% year over year, which remains a huge concern for the company.
Its return on equity — a profitability measure — stands at 9.7%, much lower than the industry's average of 18.2%. This reflects the company’s relative inefficiency in utilizing its shareholders’ funds.
The Zacks Consensus Estimate for current-year earnings is pegged at $1.34, indicating a decline of 12.99% from the prior-year reported number.
Zacks Rank and Price Performance
Shares of this currently Zacks Rank #5 (Strong Sell) company have lost 14.9% in a year’s time, wider than the industry’s decline of 4.6%.
Other companies in the same space, such as TCG BDC, Inc. (CGBD - Free Report) and FEDNAT HOLDING CO (FNHC - Free Report) have also decreased 21.5% and 30.6%, respectively, while Moodys Corporation (MCO - Free Report) has gained 40% over the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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