Raymond James Reiterates Strong Buy Rating on Blue Owl Capital (OWL)

Raymond James analyst Wilma Burdis reiterated a Strong Buy rating and $20.00 price target on Blue Owl Capital (NYSE: OWL)

The analyst comments "We hosted a virtual meeting with Erik Bissonette, Co-Head of Technology Investing. Following are our key takeaways. ● Owl Technology Finance (OTF) Corp is not seeing any cracks in key credit metrics (PIK rates, nonaccruals, or watchlist migration) and these metrics have improved in the last two years. PIK rates have decreased to <10%, a 10-point improvement from peak levels in 2022. The fund has only seen two portfolio company nonaccruals since inception, neither of which were pureplay software companies. ● OWL’s technology book has relatively short durations with average loan terms of 5-7 years and average lifetimes of 3-5 years. Mr. Bissonnette noted that the evolution of AI integration will likely play out over the longer term as enterprises are slow to adapt to new technological advancements, and that 60%-plus of the book was underwritten after 2023, with the advancements of AI (including OpenAI and Anthropic) in mind. ● Mr. Bissonnette noted that the opportunity in software continues to become more attractive for sophisticated underwriters. Spreads could widen for software loans, potentially offering opportunities to generate stronger returns on high quality companies. ● Although some private equity firms could have mediocre return outcomes in the coming years, OWL does not have equity exposure and as lenders will have the opportunity to reunderwrite any deals that may need duration extensions. OWL currently sits in the low-30% range loan-to-value (LTV) for software. While there is potential for pressured valuations on software companies to increase average LTVs across the entire industry, 60-70%-plus of equity value would need to be wiped out before OWLs investment are at risk. Owl does have preferred equity, which sits at the top capital stack."

For an analyst ratings summary and ratings history on Blue Owl Capital click here. For more ratings news on Blue Owl Capital click here.

Shares of Blue Owl Capital closed at $10.55 yesterday.

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