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

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Owl Rock Capital Corporation (ORCC - Free Report) has been witnessing weak performances due to COVID-induced business loss. The current economic situation left an adverse impact on the company’s numbers. Over the past 30 days, the company has witnessed its 2020 and 2021 earnings estimates move 1.5% and 0.8% south, respectively. This is indicative of analysts’ bearish sentiment on the stock.

In fact, its third-quarter 2020 earnings suffered the turmoil in the financial markets, apart from higher expenses and lower investment income.

Its return on equity — a profitability measure — stands at 9.7%, much lower than the industry's average of 17.4%. This reflects the company’s relative inefficiency in utilizing its shareholders’ funds.

What’s Bothering the Stock?

The company has been witnessing a steep rise in expense level over the past few years, which weighs on its margins. In 2019 and during the first nine months of 2020, the same rose 104% and 11.5% year over year, respectively. We expect this trend to continue due to steady investments. A rise in expenses might continue to put pressure on the company’s margins.

Moreover, the company’s interest income is likely to remain stressed due to a sharp decline in LIBOR in recent months.

Although Owl Rock Capital boasted a strong portfolio of investments in companies consisting of several new commitments, the metric has been declining since 2019 after a few solid years. In the first nine months of 2020, the same plunged significantly for the company, which remains a huge headwind.

The company's 2020 earnings estimate stands at $1.32 per share, implying a downside of 14.3% from the year-ago reported figure.
The company's earnings missed estimates in all the trailing four trailing quarters, the average negative surprise being of 5.4%.

Zacks Rank and Price Performance

Shares of this currently Zacks Rank #4 (Sell) company have lost 24.9% in the past year, wider than the industry’s decline of 19.8%.

Other companies in the same space, such as TCG BDC, Inc. (CGBD - Free Report) and FEDNAT HOLDING CO (FNHC - Free Report) have also decreased 20% and 61.9%, respectively, while Moodys Corporation (MCO - Free Report) has gained 25.4% 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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