Expansion Into Digital Infrastructure And Alternative Credit Will Deepen Market Presence

Key Takeaways

• Strategic acquisitions in digital infrastructure and alternative credit offer Blue Owl access to large markets, driving significant earnings growth and market presence.
  
• Focus on innovative products and minimal redemption risk ensures stable revenue, enhancing net margins and supporting sustained earnings growth.
  
• Reliance on forward-looking statements and interest rate volatility pose risks, while growth in management fees and M&A execution challenges impact future earnings stability.

Catalysts

Operates as an asset manager in the United States.

• The acquisition of IPI and its focus on the digital infrastructure ecosystem, particularly data centers, positions Blue Owl to capitalize on the growing demand for data storage and AI tools. This presence in a market with high barriers to entry could drive significant revenue growth due to strong tenant relationships and increased capital investment needs.
  
• Blue Owl's increasing footprint in alternative credit and digital infrastructure through strategic acquisitions like Atalaya and IPI provides access to multi-trillion-dollar markets. These opportunities are expected to enhance earnings by expanding its product offerings and deepening its market presence.
  
• The company's strategy of utilizing permanent capital with minimal redemption risk supports a stable revenue base. Incremental capital raised continues to build a durable earnings model, likely enhancing net margins through predictable management fee income.
  
• Blue Owl's emphasis on product innovation and differentiated offerings for the wealth channel, combined with strong distributor relationships, enables it to capture more of the fast-growing alternatives market. This focus is projected to contribute significantly to revenue and earnings growth.
  
• The launch of new real estate credit products and the ongoing expansion into European markets are anticipated to further diversify the revenue streams and contribute to robust management fee growth, thereby supporting the future scaling of earnings.

Blue Owl Capital Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Blue Owl Capital's revenue will grow by 21.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 68.4% in 3 years time.
• Analysts expect earnings to reach $2.7 billion (and earnings per share of $1.53) by about December 2027, up from $106.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.8x on those 2027 earnings, down from 131.6x today. This future PE is lower than the current PE for the US Capital Markets industry at 23.5x.
• Analysts expect the number of shares outstanding to grow by 5.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.97%, as per the Simply Wall St company report.

Blue Owl Capital Future Earnings Per Share Growth

Risks

• The reliance on forward-looking statements introduces uncertainty, as actual results could differ materially from expectations, impacting revenue and earnings forecasts.
  
• The significant growth in management fees and earnings has been primarily organic, but there is a potential risk if these trends do not continue, jeopardizing revenue growth.
  
• The high level of permanent capital provides stability, but a downturn in market conditions could still affect net margins if asset values decline.
  
• Strategic M&A plays a key role in the business model; however, the integration of new acquisitions such as IPI and Atalaya carries execution risk, potentially affecting future earnings.
  
• Volatility in interest rates, particularly the unpredictable SOFR curve, poses a risk to Part I fees, potentially impacting distributable earnings and dividend payouts.

Valuation

• The analysts have a consensus price target of $23.58 for Blue Owl Capital based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $27.0, and the most bearish reporting a price target of just $16.25.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $3.9 billion, earnings will come to $2.7 billion, and it would be trading on a PE ratio of 18.8x, assuming you use a discount rate of 7.0%.
• Given the current share price of $24.75, the analyst's price target of $23.58 is 4.9% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.