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Ares Capital (ARCC) Stock Gains 3.2% on Q4 Earnings Beat


Shares of Ares Capital Corporation ARCC have rallied 3.2% since the release of its fourth quarter and 2017 results, early this week. The company’s fourth-quarter core earnings of 38 cents per share beat the Zacks Consensus Estimate by a penny. However, the bottom line declined 9.5% from the year-ago quarter.

Results reflected improved revenues and solid portfolio activity. However, significant increase in expenses was the headwind.

GAAP net income totaled $232 million or 54 cents per share, up significantly from $75 million or 24 cents per share in the prior-year quarter.

For 2017, core earnings of $1.39 per share were down 13.7% year over year. GAAP net income was $667 million or $1.57 per share, up from $474 million or $1.51 per share in 2016.

Revenues and Expenses Rise

Ares Capital’s total investment income amounted to $307 million, up 17.6% year over year. The rise was mainly driven by higher interest income from investments. Also, the figure surpassed the Zacks Consensus Estimate of $299 million.

Total expenses surged 49.6% year over year to $172 million. The considerable increase was primarily caused by capital gains incentive fees and higher interest and credit facility fees, base management fees and income-based fees.

Net investment income increased 1.4% year over year to $140 million.

Strong Balance Sheet

As of Dec 31, 2017, the company’s cash and cash equivalents totaled $316 million, up from $223 million as of Dec 31, 2016. Total outstanding debt was $4.9 billion, up from $3.9 billion on Dec 31, 2015.

Further, the company had $2.5 billion available for additional borrowings per its present credit facility and Small Business Administration-guaranteed debentures.

As of Dec 31, 2017, Ares Capital’s total assets amounted to $12.3 billion, up from $9.2 billion as of Dec 31, 2016. Also, stockholders’ equity was $7.1 billion as of Dec 31, 2017, up from $5.2 billion on Dec 31, 2016.

Further, net asset value was $16.65 per share, up from $16.45 as of Dec 31, 2016.

Portfolio Activities

New commitments worth $1.5 billion were made during the quarter, up from $1.2 billion recorded in the prior-year quarter. Ares Capital exited $1.3 billion of commitments in the quarter compared with $1.1 billion in the year-ago quarter.

Our Take

The company’s improving investment income will likely support bottom line, going forward. Further, Ares Capital is expected to continue enhancing its portfolio, backed by a solid liquidity position. However, intensifying competition may pose a concern for the company. Also, rising expenses make us apprehensive.

Ares Capital Corporation Price, Consensus and EPS Surprise

Ares Capital Corporation Price, Consensus and EPS Surprise | Ares Capital Corporation Quote

Ares Capital has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Schedule of Other Stocks

LendingClub Corporation LC, Hercules Capital, Inc. HTGC and Corporate Capital Trust, Inc. CCT are slated to announce results on Feb 20, Feb 22 and Mar 6, respectively.

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