Owl Rock Capital Corporation is well-poised to grow on the back of rising interest income, volatility in markets and a solid growth strategy. Despite facing multiple constraints, shares of ORCC have climbed 1.6% in the past three months.

Owl Rock Capital — with a market cap of $5.1 billion — is a specialty finance company that lends funds to U.S. middle market companies. Based in New York, ORCC operates as a business development company. Courtesy of solid prospects, this presently Zacks Rank #1 (Strong Buy) stock is worth investing in at the moment.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Trend in Estimates

The Zacks Consensus Estimate for ORCC’s current-year earnings is pegged at $1.33 per share, which has witnessed five upward estimate revisions in the past 60 days against none in the opposite direction. The estimate indicates 6.4% year-over-year growth. Owl Rock Capital beat on earnings in three of the last four quarters and missed once, the average being 0.1%.

The consensus mark for current-year revenues is $1.1 billion, signaling a 10.8% year-over-year increase.

Key Drivers

Owl Rock Capital’s solid portfolio health is noteworthy. The upper-middle market firms included in ORCC’s portfolio have predictable businesses with minimum risk and strong cash flows. Companies from the financial services, internet software, insurance and food industries hold significant weightage in the diversified portfolio. Also, a significant chunk of its investments is in Senior Secured form, making it recession-proof.

A steady rise in revenues, primarily from the company’s rapidly-growing interest income and growth strategies, is likely to pave the way for long-term growth. As most of its assets are floating in nature, an improving interest rate environment is projected to drive net investment income in the second half of 2022.

ORCC’s inorganic growth story has been quite impressive. Deals like Baltimore Acquisition, Blue Owl Capital, Wellfleet CLO business and others keep strengthening its portfolio while generating substantial credit sources. It has a solid pipeline of committed merger and acquisition (M&A) deals nearing the finish line in the coming days. All these initiatives poise the company well for growth.

Owl Rock Capital’s dividend yield stands at 9.6%, much higher than the industry's average of 2.6%. It boasts a prudent capital deployment history in the form of share repurchases and dividend payments. The company paid dividends of $1.24 per share last year.

Finally, ORCC’s valuation looks impressive. Its forward 12-month price-to-earnings value stands at 9.02X, lower than the industry average of 10.86X. This indicates that the stock is cheaper than its peers and has more room left to run.

Key Risks

There are a few factors that might impede the stock’s growth.

ORCC’s rising expenses are putting pressure on margins. Also, a low return on equity compared with the industry is concerning. Nevertheless, we believe that a systematic and strategic plan of action will drive Owl Rock Capital’s growth in the long term.

Other Top-Ranked Players

Some other top-ranked stocks in the broader finance space are CI Financial Corp. , Employers Holdings, Inc. (EIG Quick QuoteEIG - Free Report) and Ares Capital Corporation (ARCC Quick QuoteARCC - Free Report) , each sporting a Zacks Rank #1 at present.

Based in Toronto, CI Financial is a leading asset management holding company. The Zacks Consensus Estimate for CIXX’s 2022 earnings has increased 1.2% in the past 30 days.

Headquartered in Reno, NV, Employers Holdings provides workers' compensation insurance to businesses operating in hazardous industries. The Zacks Consensus Estimate for EIG’s 2022 earnings has increased 5.9% in the past 60 days.

Based in Los Angeles, CA, Ares Capital specializes in rescue financing of middle-market companies. The Zacks Consensus Estimate for ARCC’s 2022 earnings indicates 16.3% year-over-year growth.