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

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Shares of Ares Capital Corporation (ARCC - Free Report) 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 - Free Report) , Hercules Capital, Inc. (HTGC - Free Report) and Corporate Capital Trust, Inc. are slated to announce results on Feb 20, Feb 22 and Mar 6, respectively.

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