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Ares Capital (ARCC) Falls 1.8% as Q1 Earnings Miss Estimates
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Shares of Ares Capital Corporation (ARCC - Free Report) lost 1.8% following the release of its first-quarter 2023 results. Quarterly core earnings of 42 cents per share missed the Zacks Consensus Estimate of 59 cents by a wide margin. The bottom line also reflected a decline of 26.3% from the prior-year quarter. Our estimate for core earnings is 50 cents per share.
Results were adversely impacted by a rise in expenses. Further, the company recorded lower gross commitments during the quarter. On the other hand, higher revenues offered some support.
GAAP net income was $278 million or 52 cents per share, up from $211 million or 44 cents per share in the prior-year quarter.
Total Investment Income & Expenses Rise
Total investment income was $618 million, up 40.5% year over year. The rise was driven by an increase in dividend income, interest income from investments and other income. The top line lagged the Zacks Consensus Estimate of $631.6 million. We had projected total investment income of $599.8 million.
Total expenses were $298 million, up 30.1%.
Portfolio Activities Decent
Gross commitments worth $766 million were made in the first quarter to new and existing portfolio companies. This compares with $2 billion of gross commitments in the prior-year quarter.
In the reported quarter, the company exited $1.88 billion of commitments compared with $2.55 billion a year ago.
The fair value of Ares Capital’s portfolio investments was $21.14 billion as of Mar 31, 2023. The fair value of accruing debt and other income-producing securities was $18.83 billion.
Balance Sheet Strong
As of Mar 31, 2023, the company’s cash and cash equivalents totaled $359 million, down from $303 million as of Dec 31, 2022.
Ares Capital had $4.4 billion available for additional borrowings under the existing credit facilities as of Mar 31, 2023. Total outstanding debt was $11.16 billion.
As of Mar 31, 2023, total assets were $21.8 billion and stockholders’ equity was $10 billion.
Net asset value was $18.45 per share, down from $18.40 as of Dec 31, 2022.
Share Repurchase Update
In April. ARCC announced an increase in its share repurchase authorization. The company now has the authorization to buy back up to $1 billion worth of shares, rising from the prior plan of up to $500 million.
Our Take
Driven by a rise in the demand for customized financing, growth in total investment income is expected to continue in the quarters ahead. An increase in investment commitments will likely keep supporting the company’s financials.
Ares Capital Corporation Price, Consensus and EPS Surprise
LPL Financial (LPLA - Free Report) is slated to announce first-quarter 2023 numbers on Apr 27.
Over the past week, the Zacks Consensus Estimate for LPL Financial’s quarterly earnings has moved 5% lower to $4.35, implying a 123.1% jump from the prior-year reported number.
Hercules Capital, Inc. (HTGC - Free Report) is scheduled to announce quarterly numbers on May 4.
Over the past 30 days, the Zacks Consensus Estimate for Hercules Capital’s first-quarter earnings has been revised 2.2% upward to 45 cents. The estimate indicates a surge of 53.3% from the prior-year quarter’s reported number.
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Ares Capital (ARCC) Falls 1.8% as Q1 Earnings Miss Estimates
Shares of Ares Capital Corporation (ARCC - Free Report) lost 1.8% following the release of its first-quarter 2023 results. Quarterly core earnings of 42 cents per share missed the Zacks Consensus Estimate of 59 cents by a wide margin. The bottom line also reflected a decline of 26.3% from the prior-year quarter. Our estimate for core earnings is 50 cents per share.
Results were adversely impacted by a rise in expenses. Further, the company recorded lower gross commitments during the quarter. On the other hand, higher revenues offered some support.
GAAP net income was $278 million or 52 cents per share, up from $211 million or 44 cents per share in the prior-year quarter.
Total Investment Income & Expenses Rise
Total investment income was $618 million, up 40.5% year over year. The rise was driven by an increase in dividend income, interest income from investments and other income. The top line lagged the Zacks Consensus Estimate of $631.6 million. We had projected total investment income of $599.8 million.
Total expenses were $298 million, up 30.1%.
Portfolio Activities Decent
Gross commitments worth $766 million were made in the first quarter to new and existing portfolio companies. This compares with $2 billion of gross commitments in the prior-year quarter.
In the reported quarter, the company exited $1.88 billion of commitments compared with $2.55 billion a year ago.
The fair value of Ares Capital’s portfolio investments was $21.14 billion as of Mar 31, 2023. The fair value of accruing debt and other income-producing securities was $18.83 billion.
Balance Sheet Strong
As of Mar 31, 2023, the company’s cash and cash equivalents totaled $359 million, down from $303 million as of Dec 31, 2022.
Ares Capital had $4.4 billion available for additional borrowings under the existing credit facilities as of Mar 31, 2023. Total outstanding debt was $11.16 billion.
As of Mar 31, 2023, total assets were $21.8 billion and stockholders’ equity was $10 billion.
Net asset value was $18.45 per share, down from $18.40 as of Dec 31, 2022.
Share Repurchase Update
In April. ARCC announced an increase in its share repurchase authorization. The company now has the authorization to buy back up to $1 billion worth of shares, rising from the prior plan of up to $500 million.
Our Take
Driven by a rise in the demand for customized financing, growth in total investment income is expected to continue in the quarters ahead. An increase in investment commitments will likely keep supporting the company’s financials.
Ares Capital Corporation Price, Consensus and EPS Surprise
Ares Capital Corporation price-consensus-eps-surprise-chart | Ares Capital Corporation Quote
Currently, ARCC carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Earnings Release Dates of Other Finance Stocks
LPL Financial (LPLA - Free Report) is slated to announce first-quarter 2023 numbers on Apr 27.
Over the past week, the Zacks Consensus Estimate for LPL Financial’s quarterly earnings has moved 5% lower to $4.35, implying a 123.1% jump from the prior-year reported number.
Hercules Capital, Inc. (HTGC - Free Report) is scheduled to announce quarterly numbers on May 4.
Over the past 30 days, the Zacks Consensus Estimate for Hercules Capital’s first-quarter earnings has been revised 2.2% upward to 45 cents. The estimate indicates a surge of 53.3% from the prior-year quarter’s reported number.