Wells Fargo Upgrades Blue Owl to Overweight, Raises PT to $15.

Wells Fargo Upgrades Blue Owl to Overweight, Raises PT to $15.

Wells Fargo has upgraded Blue Owl Capital (NYSE: OWL) from Underweight to Overweight, setting a new price target of $15.00. The stock, currently trading at $14.96 with a market capitalization of $4.19 billion, has experienced significant pressure this year with a -23.14% year-to-date return. Wells Fargo's upgrade comes after the firm's March 15, 2025 downgrade, which was based on visible credit concerns and the likelihood of a dividend cut. Despite ongoing potential credit issues with companies like Medallia, Peraton, and PRG, Wells Fargo now views OWL’s 0.68x NAV valuation as creating an unfavorable risk-reward balance.

The investment bank notes that OWL maintains strong liquidity with a current ratio of 2.24, indicating robust financial health despite market concerns. Wells Fargo anticipates that OWL will reset its dividend alongside its third-quarter 2025 results, with a reduction from the current $0.64 base dividend to approximately $0.45. This reset could be accompanied by larger near-term special dividends to reduce part of OWL’s estimated spillover balance of roughly $1.60 per share. Notably, InvestingPro data shows OWL has maintained dividend payments for 12 consecutive years, with the current yield standing at an impressive 18.72%.

Wells Fargo outlines multiple scenarios for the stock, including an upside case where improved BDC spread to Single-B credit could drive the price to $19, and a downside scenario with a potential $13 price target if market conditions deteriorate. Additionally, FS KKR Capital Corp. has completed a $400 million offering of 6.125% unsecured notes due in 2031, with the proceeds to be used for general corporate purposes, including repaying outstanding debts. RBC Capital has lowered its price target for FS KKR Capital to $18, citing concerns over credit conditions and revised net investment income estimates.

In other recent news, Blue Owl Capital has entered a two-year agreement with PayPal Holdings, under which funds managed by Blue Owl Capital will purchase about US$7 billion of US Buy Now, Pay Later receivables. This move further positions Blue Owl Capital as a prominent participant in the alternative credit sector, emphasizing its growth in innovative, fee-generating financial products. Blue Owl Capital's outlook anticipates $4.2 billion in revenue and $5.1 billion in earnings by 2028, assuming annual revenue growth of 17.5% and an earnings increase of roughly $5.0 billion from current earnings of $75.4 million.