Blue Owl Capital Corp (OBDC) stock intrinsic value fair value estimate & owner earnings analysis

Blue Owl Capital Corporation (formerly Owl Rock Capital Corporation) is an externally managed business development company that lends to U.S. middle-market companies, mostly owned by private equity firms. At June 30, 2026 it held $15.0 billion of investments at fair value (cost $15.1 billion) and owed $7.9 billion, leaving net assets of $7.0 billion, or $14.26 a share on about 493 million shares. At the end of 2025 the portfolio spanned 30 industries, the largest being internet software and services at 11.1% (borrowers such as Anaplan, Alteryx, Boomi and Smartsheet). Most loans pay a floating rate, so income moves with short-term interest rates as well as with how many borrowers fail to pay. The January 2025 merger with Blue Owl Capital Corporation III raised the average share count from about 390 million in 2024 to about 506 million in 2025. HOW WE MEASURED EARNINGS A lender's operating cash flow swings with how many loans it makes and how many are repaid, so we set those loan flows (and cash acquired in mergers) aside. What remains is net investment income plus or minus the gains and losses the company actually realizes when loans are repaid, sold or written off. Interest paid in kind and discount accretion are counted, since the lender collects them when loans repay; price marks on loans still held are left out until they become real losses. There is no stock compensation and no meaningful capital spending. On this basis earnings per share were $1.23 (2020), $1.09 (2021), $1.20 (2022), $1.84 (2023), $1.67 (2024) and $1.30 (2025). Years before 2021 were earned while the manager charged little or no incentive fee around the 2019 listing, so we measure from 2021. The 2021 to 2025 window runs from near-zero rates through the 2023 and 2024 peak and back down, and its median is $1.30 a share. WHERE EARNINGS STAND NOW Earnings fell 22% in 2025, from $1.67 to $1.30 a share, as rates fell and realized losses climbed from $53 million (2023) to $96 million (2024) to $179 million (2025). The first half of 2026 was weaker: net investment income of $338.5 million (about $0.68 a share) against $424.0 million a year earlier, realized losses of $97.7 million, unrealized markdowns of $196.3 million, and net asset value down from $14.81 to $14.26. The second quarter was better than the first: net investment income rose to $176.9 million and realized losses fell to $14.9 million. Distributions declared fell to $0.68 a share in the first half from $0.80 a year earlier. We start the base case one year out at $1.00 a share, a 23% decline, no better than the 22% fall in 2025: net investment income of about $1.36 a share (the first-half pace; the second quarter's stronger run is offset by replacing the $1.0 billion of 3.40% notes that matured July 15, 2026 at higher floating rates) less realized losses of about $0.36 a share, roughly the 2025 rate. DEBT Because this is a lender, borrowing is the raw material of the business and interest is an operating cost already deducted from the earnings above, so the debt is not subtracted again. The $7.9 billion owed at June 30, 2026 (about $16 a share) costs roughly $1.02 a share a year in cash interest, based on the $251 million paid in the first half. $1.8 billion of borrowings fall due within twelve months of that date, against $4.1 billion of undrawn credit facility capacity. Asset coverage was about 189%, against a legal minimum of 150%. The $850 million of 2.875% notes due 2028 will cost more when refinanced; we charge about $0.05 a share a year for that from year three. THE CASES Base case, $17.32 a share: earnings of $1.00 a share in each of the next two years, $0.95 in year three as the 2028 notes reprice, then $1.05 a share from year four as realized losses settle to $0.25 a share, the 2024 level and still more than double the company's 2017 to 2025 average. We credit no growth: the company must pay out nearly all of its income, so it cannot expand from retained earnings, and new lending would need new capital that has not been raised; buybacks are given no value. What keeps the earnings going past year ten is the mechanism the company has run since 2016: loans repay and the money is lent again to new sponsor-backed borrowers. Bull case, $18.83 a share: net investment income of about $1.38 a share (the second-quarter 2026 pace less the cost of replacing the July 2026 notes and repricing the 2028 notes) and realized losses back at about $0.20 a share, which is what the company produced in 2024 excluding currency losses. Earnings are $1.13 a share throughout. No rise in rates and no growth in the portfolio are assumed. Bear case, $11.82 a share: one full credit cycle of the kind middle-market lenders went through in 2008 to 2010, when Allied Capital lost $6.01 a share in 2008 alone and even Ares Capital, a first-lien-heavy lender, ended September 2009 with net asset value of $11.16. Here software and second-lien borrowers lead realized losses of about $400 million a year for three years, $1.2 billion in total, or 8% of the portfolio and about $2.43 a share. Net asset value falls about 17% to roughly $11.83 a share. Leverage rises to about 1.36 times, above the company's 0.90 to 1.25 times target, so it sells loans to shrink, and loans stopping payment cut net investment income to about $1.15 a share. Earnings are $0.34 a share for three years, then $0.78 a share on the smaller book with losses settling at $0.40 a share, above the worst full year so far. Before paying interest the business still earns about 1.3 times its interest bill in the worst years and asset coverage stays near 174%, above the 150% limit, so no forced share sale at trough prices is assumed; the case does depend on lenders continuing to roll the revolving facilities. The bear value is essentially the stressed net asset value; we give the lending franchise no value above its capital in a downturn. ACCOUNTING JUDGEMENTS Interest paid in kind (about $63 million in the first half of 2026) is counted as earned. If those borrowers fail, it shows up later as realized losses, which every case charges. Unrealized markdowns are not deducted, because the cases already charge realized losses larger than the current markdowns. WHAT COULD MAKE THIS WRONG The three things we are most likely to be wrong about are credit losses, interest rates and the dividend. If losses run like the bear case, the shares are worth about $11.82. If short-term rates fall further and cut income by $0.15 a share a year with no offset, the base case falls to about $14.82. The regular distribution, which appears to be running near $0.31 a quarter, is above our base earnings, so another cut would not surprise us. Our previous estimate was built on a slightly different basis and is not directly comparable; nothing material has been filed by the company since then. We could not obtain the June 30, 2026 non-accrual rate; at the end of 2025 loans on non-accrual were 1.14% of the portfolio at fair value. MARGIN-OF-SAFETY PRICE The margin-of-safety price is $10.00. We are reasonably sure of the earnings level within a band, because it is built from reported income and realized losses, but credit losses at a leveraged lender are the swing factor and the largest exposure is to software borrowers. The worst plausible outcome is a credit cycle worse than our bear case, with leverage breaching the target range and new shares sold below book; the first-lien-heavy portfolio and undrawn facilities make that survivable but painful. At $10.00 the price sits below the stressed net asset value of the bear case. If the base case holds and the company pays out about $1.00 a share a year, the base case implies about 29% a year over three years and about 23% over four as value moves toward $17.32. If the bear case plays out instead, distributions continue and the shares sit near stressed book value, which implies roughly a 9% annual return over five years, so the price relies on the base case for the 20% target while the bear case still implies a gain. The price assumes a three-to-four-year holding period, with a cash yield of about 10% at that price during it.