Analysts are digging in on Blue Owl Capital (OWL) with sharply conflicting views after the stock lost half its value, with Raymond James seeing a potential double while UBS remains cautious.
The divergence comes after shares plunged since last summer to a recent $10 on fears that artificial intelligence could disrupt software companies in Blue Owl's private credit portfolios. While the stock has rebounded 20% this week, Wall Street is split on what comes next.
"Our analysis supports our favorable outlook and didn’t imply imminent credit risk," Raymond James analyst Wilma Burdis wrote in a note reaffirming her Strong Buy rating. In contrast, UBS analyst Michael Brown maintains his Neutral rating, expecting fee growth to disappoint investors as rate cuts and stalled fund-raising challenge the firm.
Burdis, who has held a Buy rating since October, concluded that AI doesn’t pose an imminent threat of loan losses after a deep dive into the software borrowers in Blue Owl's BDCs. Her analysis of $12 billion in software loans found that while spreads widened on 12% of the loans, they narrowed on 40%, suggesting improving credit positions for many. She identified only two borrowers, Smartsheet and Sitecore, as being at high risk of AI disruption.
Brown, however, believes Wall Street’s expectations are too high. He argues that potential Federal Reserve rate cuts and fundraising challenges will likely hinder the private credit manager's fee-generating capabilities, leading to disappointing results for investors.
The dueling outlooks create a volatile environment for Blue Owl's stock. A resolution in favor of the bull case could restore confidence in the private credit sector's resilience to tech disruption, while a win for the bears could trigger further capital flight from the firm's funds. Investors will be closely watching the company's upcoming March quarter earnings for signs of where the credit risk and fee growth are heading.
This article is for informational purposes only and does not constitute investment advice.
