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Ares Capital's (ARCC) Investment Income Rises Amid Cost Woes
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Ares Capital Corporation (ARCC - Free Report) is expected to continue witnessing growth in total investment income, driven by the rise in demand for customized financing. However, its expansion strategies will likely raise expenses in the near term, which is expected to hurt the bottom line.
Ares Capital has been witnessing growth in total investment income over the last few years. While the total investment income declined in 2020, it recorded a three-year (2019-2022) compound annual growth rate (CAGR) of 11.1%. The momentum continued in the first quarter of 2023. Growth in investment income is expected to continue, given the regulatory changes and rising demand for customized financing. Our estimates for total investment income suggest a CAGR of 4.3% by 2025.
ARCC is currently a small participant in a market with huge growth prospects. We are encouraged by the company’s concentrated focus on its credit performance. In 2022, 2021, 2020 and 2019, it originated $9.9 billion, $15.6 billion, $6.7 billion, and $7.3 billion, respectively, in gross investment commitments to new and existing portfolio companies. Driven by the rise in demand for customized financing, the company is likely to continue witnessing a steady rise in investment commitments.
However, Ares Capital has been witnessing a continued rise in expenses. Though expenses declined in 2020 and 2022, the metric witnessed a CAGR of 9.1% over the three-year period ended 2022. The upward trend continued in the first quarter of 2023. Overall expenses are likely to remain elevated, owing to the company's expansion strategy. We project the company's total expenses to witness a CAGR of 4.1% by 2025.
Additionally, to comply with regulatory requirements, Ares Capital invests primarily in U.S.-based companies and to a lesser extent, in foreign ones. Persistent regulatory constraints may lead to increased cost of funding, and thereby limit the company’s access to capital markets. Its foreign investment income will also be limited to support its overall financials.
Shares of this Zacks Rank #3 (Hold) company have gained 0.3% compared with the industry’s 3.4% rise over the past six months.
The Zacks Consensus Estimate for SCBFF’s 2023 earnings has been revised 12.3% upward over the past 30 days. The stock has gained 8.5% over the past six months.
The consensus estimate for FCNCA’s fiscal 2023 earnings has been revised 67.2% upward over the past 60 days. The company’s share price has increased 71.7% over the past six months.
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Ares Capital's (ARCC) Investment Income Rises Amid Cost Woes
Ares Capital Corporation (ARCC - Free Report) is expected to continue witnessing growth in total investment income, driven by the rise in demand for customized financing. However, its expansion strategies will likely raise expenses in the near term, which is expected to hurt the bottom line.
Ares Capital has been witnessing growth in total investment income over the last few years. While the total investment income declined in 2020, it recorded a three-year (2019-2022) compound annual growth rate (CAGR) of 11.1%. The momentum continued in the first quarter of 2023. Growth in investment income is expected to continue, given the regulatory changes and rising demand for customized financing. Our estimates for total investment income suggest a CAGR of 4.3% by 2025.
ARCC is currently a small participant in a market with huge growth prospects. We are encouraged by the company’s concentrated focus on its credit performance. In 2022, 2021, 2020 and 2019, it originated $9.9 billion, $15.6 billion, $6.7 billion, and $7.3 billion, respectively, in gross investment commitments to new and existing portfolio companies. Driven by the rise in demand for customized financing, the company is likely to continue witnessing a steady rise in investment commitments.
However, Ares Capital has been witnessing a continued rise in expenses. Though expenses declined in 2020 and 2022, the metric witnessed a CAGR of 9.1% over the three-year period ended 2022. The upward trend continued in the first quarter of 2023. Overall expenses are likely to remain elevated, owing to the company's expansion strategy. We project the company's total expenses to witness a CAGR of 4.1% by 2025.
Additionally, to comply with regulatory requirements, Ares Capital invests primarily in U.S.-based companies and to a lesser extent, in foreign ones. Persistent regulatory constraints may lead to increased cost of funding, and thereby limit the company’s access to capital markets. Its foreign investment income will also be limited to support its overall financials.
Shares of this Zacks Rank #3 (Hold) company have gained 0.3% compared with the industry’s 3.4% rise over the past six months.
Image Source: Zacks Investment Research
Finance Stocks Worth Considering
A couple of better-ranked stocks from the finance sector are Standard Chartered PLC (SCBFF - Free Report) and First Citizens BancShares (FCNCA - Free Report) , each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for SCBFF’s 2023 earnings has been revised 12.3% upward over the past 30 days. The stock has gained 8.5% over the past six months.
The consensus estimate for FCNCA’s fiscal 2023 earnings has been revised 67.2% upward over the past 60 days. The company’s share price has increased 71.7% over the past six months.