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Oppenheimer analyst Mitchel Penn initiated coverage on Blue Owl Capital Corp. III (NYSE:OBDE) with an Outperform rating on Wednesday as a higher estimated return on equity relative to estimated cost of equity capital justifies a higher-than-current stock price.
Penn estimates that the business development company, which went public in January, can earn a 9.5% ROE, he wrote in a note. And, given an estimated cost of equity capital of 9%, he calculated a fair value of $16 per share, compared with the current stock price of $15.11.
What's more, Penn added, OBDE has credit risk that trails that of the industry average. Specifically, the company has trailing-three-year net credit losses of eight basis points of gains, on average, vs. 26 bps of losses for the industry.
The analyst did warn of potentially "increased technical selling pressure" after lock-up periods expire. Investors will be able to sell one-third of their positions after each of three lock-up periods dated July 23, 2024, Oct. 21, 2024, and Jan. 24, 2025.
OBDE slipped 0.5% in late morning trading.