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Why You Should Retain Owl Rock Capital (ORCC) in Your Portfolio

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Zacks Equity Research
·3 min read
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Owl Rock Capital Corporation ORCC has been in investors' good books owing to its healthy revenue stream and a solid portfolio.

The company concluded 2020 with investments in 119 portfolio companies with an aggregate fair value of $10.8 billion. It continues to seek opportunities in stable, large and recession-resistant businesses.

Its return on assets — a profitability measure — stands at 5.1%, higher than the industry's average of 2.8%. This reflects the company’s efficiency in utilizing its shareholders’ funds.

Now let’s see what makes this stock an investor favorite.

Owl Rock Capital has been witnessing a surge in revenues since its inception in 2015. Its 2016-2020 CAGR of 129.4% is pretty impressive. In 2020, it gained on the back of an expanded investment portfolio. 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.

Management also declared that the company will be entering the public market through business combination with Baltimore Acquisition Corp, a special purpose acquisition company.

The company flaunts great solvency level with $2.1 billion of liquidity. Total debt of the company accounts for 47.9% (in line sequentially) of its capital, lower than the industry average of 58.7%. The available cash and credit facility together is lower than its debt of $5.4 billion. However, it added commitments to its senior security revolver of more than $1.3 billion. Nevertheless, the company doesn’t have any debt maturities until December 2022.

On the back of its capital position, Owl Rock Capital deploys capital to enhance shareholder value. It recently announced a dividend for the fourth quarter of 2020. It paid six special dividends apart from the regular ones in the fourth quarter. Its dividend yield stands at 8.7%, much higher than its industry's average of 1.2%. This should instill investors’ confidence in the stock.

However, new investment commitments have been declining over the past few quarters, which is a concern. In 2020, the same fell 22.6% year over year.

Shares of this currently Zacks Rank #3 (Hold) company have gained 25.8% in a year’s time, underperforming the industry's growth of 34.7%.

This looks better than the price performance of other companies in the same space, such as, HoulihanLokey, Inc. HLI, Virtu Financial, Inc. VIRT and Jefferies Financial Group Inc. JEF, which have also soared 46%, 42.2%, 117.5%, respectively, 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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Zacks Investment Research