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Ares Capital (ARCC) Stock Gains 1.5% on Q3 Earnings Beat

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Ares Capital Corporation’s (ARCC - Free Report) shares rallied 1.5%, following the release of third-quarter 2020 results. Core earnings of 39 cents per share beat the Zacks Consensus Estimate by a penny. However, the bottom line declined 18.8% year over year.

In the reported quarter, the company recorded a decline in total investment income along with higher expenses. Nevertheless, decent portfolio activity supported results to some extent. Further, the company’s liquidity position remained strong, which was another positive.

GAAP net income was $441 million or $1.04 per share, up from $175 million or 41 cents per share in the prior-year quarter.

Total Investment Income Declines, Expenses Rise

Total investment income was $352 million, down 9% year over year. The fall was due to lower capital structuring service fees, interest income from investments and dividend income. Nonetheless, the figure surpassed the Zacks Consensus Estimate of $343.8 million.

Total expenses were $182 million, up 1.1% from the prior-year level.

Net investment income declined 21.7% year over year to $166 million.

Balance Sheet Strong

As of Sep 30, 2020, the company’s cash and cash equivalents (including restricted cash) totaled $276 million, up from $176 million as of Dec 31, 2019.

Moreover, Ares Capital had $4.2 billion available for additional borrowings under the existing credit facilities as of Sep 30, 2020. Total outstanding debt was $7.55 billion, up from $6.97 billion as of Dec 31, 2019.

As of Sep 30, 2020, Ares Capital’s total assets amounted to $14.95 billion and stockholders’ equity was $6.96 billion.

Further, net asset value was $16.48 per share, down from $17.32 as of Dec 31, 2019.

Portfolio Activity Decent

Gross commitments worth $706 million were made during the third quarter to new and existing portfolio companies. This compares with $2.41 billion worth of gross commitments in the prior-year quarter.

Further, during the quarter, the company exited $352 million of commitments compared with $1.42 billion a year ago.

The fair value of Ares Capital’s portfolio investments as of Sep 30, 2020, was $14.36 billion, which included $12.6 billion in accruing debt and other income-producing securities.

Our Take

An increase in demand for customized financing is expected to continue supporting Ares Capital. However, elevated expense levels (as witnessed in the third quarter as well) may hurt the bottom line.

Ares Capital Corporation Price, Consensus and EPS Surprise

 

Ares Capital Corporation Price, Consensus and EPS Surprise

Ares Capital Corporation price-consensus-eps-surprise-chart | Ares Capital Corporation Quote

Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates of Other Finance Stocks

Hercules Capital Inc. (HTGC - Free Report) is scheduled to announce quarterly results on Oct 29. Main Street Capital Corporation (MAIN - Free Report) and FS KKR Capital Corp. (FSK - Free Report) are scheduled to announce results on Nov 5 and Nov 9, respectively.

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