Back to top

Image: Bigstock

Here's Why You Should Stay Away From Owl Rock Capital

Read MoreHide Full Article

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.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>