On Monday, Wells Fargo (NYSE:WFC) adjusted its stance on Blackstone (NYSE:BX) Secured Lending Fund (NYSE:BXSL), shifting the rating from Overweight to Equal Weight and setting a price target of $29.00. The stock currently trades at $32.58, near its 52-week high of $32.67, despite the rating downgrade attributed to signs of credit weakness in the business development company's (BDC) portfolio.
According to InvestingPro data, seven analysts have recently revised their earnings expectations downward for the upcoming period.
The analyst from Wells Fargo noted that the initial Overweight rating was based on Blackstone Secured Lending's newer vintage portfolio and its predominantly first lien/unitranche portfolio, which was expected to outperform peers in credit performance.
While the company maintains strong fundamentals with a P/E ratio of 8.6 and impressive revenue growth of 17.27% over the last twelve months, recent developments have raised concerns about the credit quality within its holdings. For deeper insights into BXSL's financial health and valuation metrics, consider accessing the comprehensive Pro Research Report available on InvestingPro.
Specific issues were identified with certain portfolio companies. Benefytt Technologies (NASDAQ:BFYT), WHCG Purchaser, and SEKO Global were mentioned as examples where credit performance began to falter. Additionally, Navigator Acquiror has been marked down for four consecutive quarters, indicating a more systemic credit deterioration. Furthermore, Snoopy Bidco has shown volatility in its payment in kind (PIK) pay status.
One of the BDC's largest credits, Medallia (NYSE:MDLA), was also highlighted for being marked down to 95% of par in the most recent quarter. This markdown occurred despite the company maintaining tight spreads. Moreover, Medallia has been paying some interest in PIK for nearly three years since the loan was originated, which is a longer period than initially anticipated by lenders, as reported by Bloomberg.
The downgrade reflects a shift in the analyst's perspective on the creditworthiness and performance of Blackstone Secured Lending Fund's investment portfolio. The new price target suggests a recalibration of the fund's valuation in light of the recent credit performance issues.
Despite these concerns, BXSL maintains a significant 9.45% dividend yield and demonstrates relatively low price volatility with a beta of 0.44. Get access to more valuable insights and detailed analysis through InvestingPro, which offers additional ProTips and comprehensive financial metrics for informed investment decisions.
In other recent news, Blackstone Secured Lending Fund (BXSL) has reported a robust performance in the third quarter of 2024, with a net investment income (NII) of $186 million, or $0.91 per share, marking a 16% increase year-over-year. The fund's net asset value (NAV) per share saw a slight rise to $27.27, and the dividend payout remained well-covered at 118%, yielding 11.3%. The company's credit rating was upgraded by Moody's (NYSE:MCO) from Baa3 to Baa2, reflecting its solid financial position.
The company also reported $1.1 billion in new commitments and $956 million in fundings, the highest since 2021. The investments are 99% in first lien senior secured loans, with a low nonaccrual rate of 0.2%. The management team, including Co-CEOs Brad Marshall and Jonathan Bock, President Carlos Whitaker, and CFO Teddy Desloge, presented an optimistic outlook for increased M&A activity in 2025.
Despite a cautious outlook on income generation for the next year due to year-to-date repayments at 6%, the company reported a record total investment income of $339 million, up 21% year-over-year. The firm's disciplined investment strategy and focus on maintaining high credit ratings are key to its recent developments and future plans.
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