Blue Owl Capital's Q2 Earnings Test the Bear Case

Blue Owl Capital (OWL) reported second-quarter earnings on Aug. 7 that beat analyst estimates. Fee-related earnings came in at $0.41 a share, topping the consensus $0.38. Net investment income was $0.38, above the $0.35 quarterly dividend. The company also said it had no non-accruals in its $16.5 billion portfolio.

The stock touched $16.72 in early August, down 63% from the 2022 high. Blue Owl Capital's 63% Drop: What the Market Mispriced covered the bear thesis in detail. That thesis centered on rising credit losses and a dividend that looked vulnerable. The quarterly data at least challenges the narrative that the portfolio is deteriorating.

The dividend coverage ratio – net investment income over dividends – was 1.09x last quarter. That is thin. A recession that pushed defaults to 5% would flip that ratio negative, according to some credit analysts. Blue Owl had $2.1 billion in undrawn credit facilities and $1.3 billion in cash at the end of June, giving it room to absorb moderate losses.

A string of quarters with no new non-accruals and a dividend that stays intact through year-end would confirm the thesis. A single large loan in distress or a recession scenario that forces a dividend cut would weaken it.

Blue Owl's loans are secured and have covenant protections. They are held to maturity rather than syndicated. That does not make them bulletproof. It means the loss curve is slower and more predictable.

The AlphaScala score for OWL is currently unavailable, and the stock is listed as Unscored. That reflects the difficulty of modelling credit outcomes in a late-cycle environment where the timing of a recession is the dominant variable.

The next concrete marker is October's third-quarter earnings. A repeat of last quarter's coverage ratio would reduce the risk of a dividend cut. A miss would revive the bear case. The stock has rallied 18% since the earnings report. It remains 55% below the 2022 high.