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Ares Capital (ARCC) Up 5.3% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Ares Capital (ARCC - Free Report) . Shares have added about 5.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Ares Capital due for a pullback? 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 catalysts.
Ares Capital Q1 Earnings Miss Estimates, Costs Rise Y/Y
Ares Capital’s first-quarter 2023 core earnings of 57 cents per share missed the Zacks Consensus Estimate of 59 cents. The bottom line reflected a rise of 35.7% from the prior-year quarter. Our estimate for core earnings was 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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, Ares Capital has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ares Capital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Ares Capital (ARCC) Up 5.3% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Ares Capital (ARCC - Free Report) . Shares have added about 5.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Ares Capital due for a pullback? 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 catalysts.
Ares Capital Q1 Earnings Miss Estimates, Costs Rise Y/Y
Ares Capital’s first-quarter 2023 core earnings of 57 cents per share missed the Zacks Consensus Estimate of 59 cents. The bottom line reflected a rise of 35.7% from the prior-year quarter. Our estimate for core earnings was 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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, Ares Capital has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ares Capital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.