Overview
Bank of America has published a bullish case for Blue Owl, arguing that recent market confusion around the private credit sector has pressured the shares and produced what the bank views as a compelling buying opportunity. The note highlights heightened uncertainty as a factor weighing on Blue Owl and other credit-focused alternative asset managers, naming Ares Management (NYSE:ARES) and Apollo Global Management (NYSE:APO) as peers affected by the same dynamics.
Valuation and target
The bank assigned a $24 price target for Blue Owl, a level it says implies more than a 100% total return. That target is derived from applying a 25-times multiple to the firm’s 2028 distributable earnings estimate after subtracting stock-based compensation. Using this framework, Bank of America also established a valuation floor of $22 by applying the same 25-times fee-related earnings multiple while backing out $1.30 in negative equity.
Earnings and expense assumptions
Bank of America projects fee-related earnings growth in the high-teens through 2028, culminating in $1.46 per share on a pre-tax basis. The bank’s model incorporates a higher assumed tax rate of 10.4% versus 5.1% in 2025, and it factors in lower stock-based compensation of $485 million compared with $726 million as IPO- and merger-related tranches expire.
Return drivers
The research note lists three pillars supporting its upside scenario: a 9% dividend yield on the stock, mid-teen earnings-per-share growth, and material potential for valuation multiple expansion. Together, the bank indicates these elements underpin a 130% price-target return from current levels.
Precedent and strategic considerations
Bank of America drew parallels between the current weakness in Blue Owl and prior sell-offs at other alternative managers. It pointed to declines in Blackstone (NYSE:BX) in the fourth quarter of 2022, Apollo in the second quarter of 2020, and Ares in the fourth quarter of 2018 - episodes which, according to the bank, were followed by total returns in the range of 80% to 190% within 12 months measured from the lows.
Additionally, the bank noted that takeout potential could be a factor supporting the stock, citing the co-founder’s prior sale of GSO Capital Partners to Blackstone and the presence of secular growth businesses within Blue Owl’s portfolio.
Key points
- Bank of America sets a $24 price target for Blue Owl, implying over 100% total-return upside based on a 25-times multiple on 2028 distributable earnings adjusted for stock-based compensation.
- Projected drivers include high-teens fee-related earnings growth to $1.46 per share (pre-tax) by 2028, a higher modeled tax rate of 10.4% in later years, and declining stock-based compensation as tranches lapse.
- BofA compares the current weakness to past sell-offs in peer alternative managers and highlights potential strategic interest given the co-founder’s track record and secular growth businesses.
Risks and uncertainties
- Elevated market uncertainty in private credit and alternative asset managers could continue to pressure valuations, affecting firms across the credit-focused asset-management sector.
- Realization of the bank’s target depends on assumptions about fee-related earnings growth, tax rates, and reductions in stock-based compensation; changes to any of these inputs could alter the valuation outcome.
- Takeout potential is highlighted but not guaranteed; any consolidation scenario would depend on strategic interest and transaction dynamics that are uncertain.
Impacted sectors
- Financials - alternative asset managers and asset-management fee models.
- Credit markets - private credit and related fee-generating businesses.