Oaktree Specialty Lending (OCSL) AI Stock Analysis

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Oaktree Specialty Lending

(NASDAQ:OCSL)

59Neutral

Oaktree Specialty Lending's overall stock score reflects a stable yet challenged financial performance with strong equity and cash flow positions, albeit under profitability pressure. Technical indicators suggest a bearish trend, while valuation metrics highlight a high P/E ratio but an attractive dividend yield. The latest earnings call provides both strategic optimism and operational cautions, balancing the outlook with positive developments and notable risks.

Positive Factors

Earnings

OCSL reported adjusted NOI of $0.55 per share, above the $0.53 estimate, helped by non-recurring items and discretionary incentive fee waivers.

Negative Factors

Credit Quality

Three companies were added to non-accrual this quarter, with total non-accrual assets standing at approximately 4.9% of cost.

Dividend Sustainability

Without continued support from fee waivers, OCSL is likely to underearn its dividend as SOFR moves lower and the portfolio shifts more senior.

Valuation

OCSL's recent credit experience and management turnover are likely to lead to a discounted valuation until NAV stabilizes.

Oaktree Specialty Lending (OCSL) vs. S&P 500 (SPY)

Market Cap

$1.18B

Dividend Yield14.29%

Average Volume (3M)984.47K

Price to Earnings (P/E)21.5

Beta (1Y)0.54

Revenue Growth-37.41%

EPS Growth-55.52%

CountryUS

EmployeesN/A

SectorFinancial

Sector Strength78

IndustryFinancial - Credit Services

Share Statistics

EPS (TTM)0.67

Shares Outstanding82,245,316

10 Day Avg. Volume1,228,177

30 Day Avg. Volume984,467

Financial Highlights & Ratios

PEG RatioN/A

Price to Book (P/B)N/A

Price to Sales (P/S)3.47

Price to Cash Flow (P/CF)2.20

P/FCF Ratio2.20

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$16.00

Price Target Upside13.64% Upside

Rating ConsensusHold

Number of Analyst Covering3

Oaktree Specialty Lending Business Overview & Revenue Model

Company DescriptionOaktree Specialty Lending Corporation is a business development company specializing in investments in middle market, bridge financing, first and second lien debt financing, unsecured and mezzanine loan, mezzanine debt, senior and junior secured debt, expansions, sponsor-led acquisitions, preferred equity and management buyouts in small and mid-sized companies. It seeks to invest in education services, business services, retail and consumer, healthcare, manufacturing, food and restaurants, construction and engineering, and media and advertising sectors. It invests between $5 million to $75 million principally in the form of one-stop, first lien, and second lien debt investments, which may include an equity co-investment component in companies with enterprise value between $20 million and $150 million and EBITDA between $3 million and $50 million. The fund has a hold size of up to $75 million and may underwrite transactions up to $100 million. It primarily invests in North America. The fund seeks to be a lead investor in its portfolio companies.

How the Company Makes MoneyOCSL makes money primarily through interest income generated from its portfolio of debt investments. As a BDC, the company lends capital to middle-market companies, charging interest on these loans, which serves as the main revenue stream. Additionally, OCSL may realize gains from equity investments, which can contribute to its earnings. The company also benefits from its strategic affiliation with Oaktree Capital Management, L.P., which provides management expertise and access to a broad network of industry contacts. This partnership can enhance deal flow and investment opportunities, ultimately supporting the company's revenue generation and growth.

Oaktree Specialty Lending Financial Statement Overview

Summary

Oaktree Specialty Lending presents a mixed financial picture. The income statement reflects strong gross margins but operational challenges. The balance sheet is robust with no debt, providing financial stability, but profitability is limited. Cash flow analysis shows strong operating cash generation, though there are inconsistencies in free cash flow growth. Overall, the company maintains a stable financial position with room for improvement in profitability and cash flow management.

Income Statement

Neutral

Oaktree Specialty Lending shows a mixed financial performance. The TTM gross profit margin is strong at 84.81%, indicating efficient cost management. However, the net profit margin for TTM is modest at 23.97%, and a negative EBIT margin of -29.24% suggests operational challenges. Revenue growth is volatile, with a significant decline in the latest annual report, indicating potential revenue instability.

Balance Sheet

Positive

The company's balance sheet is robust with no debt, resulting in a favorable debt-to-equity ratio of 0. The equity ratio is stable at around 47%, indicating a solid equity base. However, the return on equity is relatively low at 3.77% TTM, suggesting limited profitability relative to equity.

Cash Flow

Neutral

Oaktree Specialty Lending's cash flow statement reveals strong operating cash flow with an impressive operating cash flow to net income ratio of 5.89 for TTM. However, free cash flow growth is inconsistent, with a significant drop in the latest annual report, indicating potential cash flow management issues.

TTM	Sep 2024	Sep 2023	Sep 2022	Sep 2021	Sep 2020
Breakdown
Income Statement		Total Revenue
227.83M	346.25M	379.29M	39.11M	248.31M	52.31M
	Gross Profit
193.14M	346.25M	302.83M	-16.54M	176.90M	13.06M
	EBIT
-66.62M	338.93M	292.42M	79.79M	240.84M	37.45M
	EBITDA
33.48M	0.00	-61.63M	279.70M	235.81M	0.00
	Net Income Common Stockholders
54.61M	175.05M	117.33M	29.22M	237.26M	39.22M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
23.47M	63.97M	145.54M	23.53M	29.33M	39.10M
	Total Assets
490.84M	3.20B	3.22B	2.65B	2.64B	1.64B
	Total Debt
0.00	0.00	1.60B	1.30B	1.27B	709.32M
	Net Debt
-23.47M	-63.97M	1.46B	1.28B	1.24B	670.22M
	Total Liabilities
6.45M	1.71B	1.70B	1.40B	1.32B	725.83M
	Stockholders Equity
484.40M	1.49B	1.52B	1.25B	1.31B	914.88M
Cash Flow		Free Cash Flow
321.57M	19.08M	228.76M	22.39M	-230.52M	-152.88M
	Operating Cash Flow
321.57M	19.08M	228.76M	22.39M	-230.52M	-152.88M
	Investing Cash Flow
-51.06M	0.00	0.00	-8.32M	-328.01M	-147.61M
	Financing Cash Flow
-167.40M	-86.77M	-110.41M	-26.82M	224.19M	176.33M

Oaktree Specialty Lending Technical Analysis

Technical Analysis Sentiment

Negative

Last Price14.08

Price Trends

50DMA

15.08

Negative

100DMA

15.06

Negative

200DMA

15.23

Negative

Market Momentum

MACD

-0.37

Negative

RSI

43.41

Neutral

STOCH

80.10

Negative

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For OCSL, the sentiment is Negative. The current price of 14.08 is below the 20-day moving average (MA) of 14.55, below the 50-day MA of 15.08, and below the 200-day MA of 15.23, indicating a bearish trend. The MACD of -0.37 indicates Negative momentum. The RSI at 43.41 is Neutral, neither overbought nor oversold. The STOCH value of 80.10 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for OCSL.

Oaktree Specialty Lending Risk Analysis

Oaktree Specialty Lending disclosed 70 risk factors in its most recent earnings report. Oaktree Specialty Lending reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Oaktree Specialty Lending Peers Comparison

Overall Rating

UnderperformOutperform

Sector (63)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
YRD	84 Outperform	$495.53M	2.26	17.96%	3.16%	17.07%	-8.81%
LX	77 Outperform	$899.91M	7.75	10.77%	1.74%	10.06%	0.04%
BBDC	74 Outperform	$917.06M	8.35	9.24%	11.95%	3.82%	-12.74%
AGM	69 Neutral	$1.85B	10.61	14.28%	3.27%	26.19%	3.95%
Sector *	63 Neutral	$12.00B	9.27	8.14%	79.61%	12.85%	-5.12%
OCSL	59 Neutral	$1.18B	21.49	3.69%	14.29%	-37.41%	-55.52%
LC	54 Neutral	$1.08B	20.89	3.96%	―	3.63%	27.77%

* Financial Sector Average

Performance Comparison

OCSL

Oaktree Specialty Lending

14.08

-3.17

-18.38%

AGM

Federal Agricultural

172.00

-8.71

-4.82%

BBDC

Barings BDC

8.50

0.14

1.67%

LendingClub

9.25

1.16

14.34%

YRD

Yiren Digital

5.61

0.81

16.88%

Lexinfintech Holdings

6.72

5.15

328.03%

Oaktree Specialty Lending Earnings Call Summary

Earnings Call Date: Feb 4, 2025 | % Change Since: -8.99% | Next Earnings Date: May 1, 2025

Earnings Call Sentiment Neutral

The earnings call highlighted strategic actions to strengthen the company's financial position, including equity purchase at a premium, amended fee structure, and positive market outlook. However, the call also noted challenges such as declines in adjusted NII and NAV, issues with non-accrual investments, and interest rate pressures.

Highlights

Equity Purchase at Premium

Oaktree purchased $100 million of newly issued common stock from OCSL at a 10% premium to the stock price, resulting in a nearly 7% increase to NAV.

Amended Fee Structure

A permanent cap was instituted on the Part I incentive fee, waiving $6.2 million of fees this quarter, providing clarity and stability.

Dividend Policy Adjustment

A new base dividend of $0.40 per share, plus a supplemental dividend of $0.07 per share was announced, aiming for sustainable distributions.

Strong Portfolio Activity

Invested $198 million in new and existing companies, with 82% of the portfolio in first lien positions, and a healthy weighted average yield of 10.7%.

Positive Developments in Portfolio

Finthrive was successfully restructured and removed from non-accrual status, among other positive trends in portfolio companies.

Optimistic Market Outlook

Expectations for increased deal flow in 2025, with private equity firms holding over $2 trillion of dry powder, suggest a positive outlook for the sector.

Lowlights

Adjusted NII Decline

Adjusted net investment income was $0.54 per share, down from $0.55 per share in the prior quarter.

Net Asset Value Decline

Net asset value per share declined from $18.09 to $17.63.

Challenges with Non-Accrual Investments

Investments on non-accrual status were 3.9% of the portfolio at fair value, with additions like Dominion Diagnostics facing liquidity challenges.

Write-Downs on Underperforming Assets

Further write-downs were taken on several underperforming assets, concentrated in a handful of struggling investments.

Interest Rate and Spread Challenges

Elevated interest rates remain a challenge for many borrowers; spreads have tightened, adding competitive pressure.

Company Guidance

During Oaktree Specialty Lending Corporation's first fiscal quarter of 2025 conference call, several key metrics and strategic actions were discussed. Oaktree purchased $100 million of newly issued common stock from OCSL at $17.63 per share, equating to a 10% premium, which resulted in nearly a 7% increase in net asset value (NAV). The company also implemented a new fee structure, waiving $6.2 million in Part I incentive fees. The dividend policy was amended to include a base dividend of $0.40 per share and a supplemental dividend of $0.07 per share. The adjusted net investment income for the quarter was $45 million, or $0.54 per share. OCSL's portfolio had a fair value of $2.8 billion, with investments in 136 companies, and a weighted average yield of 10.7% on debt investments. Non-accrual investments represented 3.9% of the portfolio at fair value. The company remains focused on leveraging its platform for growth, with a strong pipeline to deploy additional equity and leverage in the coming quarters.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.