A month has gone by since the last earnings report for Ares Capital (ARCC - Free Report) . Shares have lost about 7.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Ares Capital due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Ares Capital Q4 Earnings Beat Estimates, Expenses Rise Y/Y
Ares Capital’s fourth-quarter 2021 net investment income of 52 cents per share beat the Zacks Consensus Estimate of 50 cents. The bottom line, however, reflected a fall of 3.7% from the prior-year quarter.
The results were aided by a rise in total investment income. Portfolio activity remained solid in the quarter. However, an increase in expenses was the undermining factor.
GAAP net income was $382 million or 83 cents per share compared with $378 million or 89 cents per share recorded in the prior-year quarter.
In 2021, net investment income per share of $1.66 lagged the Zacks Consensus Estimate of $1.94. Also, the bottom line declined 11.2% from the previous year. GAAP net income was $1.57 billion or $3.51 per share, up substantially from $484 million or $1.14 per share in 2020.
Total Investment Income Improves, Expenses Rise
Total investment income in the quarter was $529 million, up 20.2% year over year. The rise was driven by an increase in capital structuring service fees, dividend income and interest income from investments. The top line outpaced the Zacks Consensus Estimate of $485.3 million.
In 2021, total investment income was $1.82 billion, up 20.5% from the 2020 level. Also, the top line handily beat the Zacks Consensus Estimate of $1.78 billion.
Total quarterly expenses were $279 million, jumping 36.7%.
Portfolio Activities Solid
Gross commitments worth $5.87 billion were made in the fourth quarter to new and existing portfolio companies. This compares with $3.86 billion worth of gross commitments in the prior-year quarter.
In the reported quarter, the company exited $3.87 billion of commitments compared with $3.03 billion a year ago.
The fair value of Ares Capital’s portfolio investments was $20 billion as of Dec 31, 2021. The fair value of accruing debt and other income-producing securities was $18.18 billion.
Balance Sheet Strong
As of Dec 31, 2021, the company’s cash and cash equivalents totaled $372 million, up from $254 million as of Dec 31, 2020.
Ares Capital had $4.1 billion available for additional borrowings under the existing credit facilities as of Dec 31, 2021. Total outstanding debt was $11.1 billion.
As of Dec 31, 2021, total assets were $20.84 billion and stockholders’ equity was $8.87 billion.
Net asset value was $18.86 per share, up from $16.97 as of Dec 31, 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, Ares Capital has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Ares Capital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Just Released: Zacks Top 10 Stocks for 2024
Hurry – you can still get in early on our 10 top tickers for 2024. Hand-picked by Zacks Director of Research, Sheraz Mian, this portfolio has been stunningly and consistently successful. From inception in 2012 through November, 2023, the Zacks Top 10 Stocks gained +974.1%, nearly TRIPLING the S&P 500’s +340.1%. Sheraz has combed through 4,400 companies covered by the Zacks Rank and handpicked the best 10 to buy and hold in 2024. You can still be among the first to see these just-released stocks with enormous potential.
See New Top 10 Stocks >>
A month has gone by since the last earnings report for Ares Capital (ARCC - Free Report) . Shares have lost about 7.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Ares Capital due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Ares Capital Q4 Earnings Beat Estimates, Expenses Rise Y/Y
Ares Capital’s fourth-quarter 2021 net investment income of 52 cents per share beat the Zacks Consensus Estimate of 50 cents. The bottom line, however, reflected a fall of 3.7% from the prior-year quarter.
The results were aided by a rise in total investment income. Portfolio activity remained solid in the quarter. However, an increase in expenses was the undermining factor.
GAAP net income was $382 million or 83 cents per share compared with $378 million or 89 cents per share recorded in the prior-year quarter.
In 2021, net investment income per share of $1.66 lagged the Zacks Consensus Estimate of $1.94. Also, the bottom line declined 11.2% from the previous year. GAAP net income was $1.57 billion or $3.51 per share, up substantially from $484 million or $1.14 per share in 2020.
Total Investment Income Improves, Expenses Rise
Total investment income in the quarter was $529 million, up 20.2% year over year. The rise was driven by an increase in capital structuring service fees, dividend income and interest income from investments. The top line outpaced the Zacks Consensus Estimate of $485.3 million.
In 2021, total investment income was $1.82 billion, up 20.5% from the 2020 level. Also, the top line handily beat the Zacks Consensus Estimate of $1.78 billion.
Total quarterly expenses were $279 million, jumping 36.7%.
Portfolio Activities Solid
Gross commitments worth $5.87 billion were made in the fourth quarter to new and existing portfolio companies. This compares with $3.86 billion worth of gross commitments in the prior-year quarter.
In the reported quarter, the company exited $3.87 billion of commitments compared with $3.03 billion a year ago.
The fair value of Ares Capital’s portfolio investments was $20 billion as of Dec 31, 2021. The fair value of accruing debt and other income-producing securities was $18.18 billion.
Balance Sheet Strong
As of Dec 31, 2021, the company’s cash and cash equivalents totaled $372 million, up from $254 million as of Dec 31, 2020.
Ares Capital had $4.1 billion available for additional borrowings under the existing credit facilities as of Dec 31, 2021. Total outstanding debt was $11.1 billion.
As of Dec 31, 2021, total assets were $20.84 billion and stockholders’ equity was $8.87 billion.
Net asset value was $18.86 per share, up from $16.97 as of Dec 31, 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, Ares Capital has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Ares Capital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Just Released: Zacks Top 10 Stocks for 2024
Hurry – you can still get in early on our 10 top tickers for 2024. Hand-picked by Zacks Director of Research, Sheraz Mian, this portfolio has been stunningly and consistently successful. From inception in 2012 through November, 2023, the Zacks Top 10 Stocks gained +974.1%, nearly TRIPLING the S&P 500’s +340.1%. Sheraz has combed through 4,400 companies covered by the Zacks Rank and handpicked the best 10 to buy and hold in 2024. You can still be among the first to see these just-released stocks with enormous potential.
See New Top 10 Stocks >>
Get the latest research report on ARCC - FREE