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Ares Capital (ARCC) Q3 Earnings Beat as Revenues Improve Y/Y

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Ares Capital Corporation’s (ARCC - Free Report) third-quarter 2023 core earnings of 59 cents per share surpassed the Zacks Consensus Estimate by a penny. The bottom line also reflected a rise of 18% from the prior-year quarter.

Results were primarily aided by an improvement in the total investment income. Also, the company’s portfolio activity was robust in the quarter. However, an increase in expenses hurt the results to some extent.

GAAP net income was $500 million or 89 cents per share, up from $104 million or 21 cents per share in the prior-year quarter. We projected net income of $330.2 million.

Total Investment Income Improves, Expenses Rise

Total investment income was $655 million, up 22% year over year. The rise was driven by an increase in interest income from investments and dividend income. The top line marginally lagged the Zacks Consensus Estimate of $655.1 million.

Total expenses were $363 million, up 54.5% year over year. Our estimate for the metric was $326.2 million.

Portfolio Activities Robust

Gross commitments worth $1.6 billion were made in the third quarter to new and existing portfolio companies. This compares with $2.2 billion of gross commitments in the prior-year quarter. We had projected gross commitments worth $1.3 billion.

In the reported quarter, the company exited $1.3 billion of commitments compared with $2 billion a year ago. Our estimate was pegged at $1.2 billion.

The fair value of Ares Capital’s portfolio investments was $21.9 billion as of Sep 30, 2023. The fair value of accruing debt and other income-producing securities was $19.5 billion.

Balance Sheet Strong

As of Sep 30, 2023, the company’s cash and cash equivalents totaled $527 million, up from $303 million as of Dec 31, 2022.

Ares Capital had $4.8 billion available for additional borrowings under the existing credit facilities as of Sep 30, 2023. Total outstanding debt was $11.6 billion.

As of Sep 30, 2023, total assets were $22.9 billion and stockholders’ equity was $10.8 billion. Our estimate for total assets was $23.6 billion. We had projected stockholders’ equity of $10.5 billion.

Net asset value was $18.99 per share, up from $18.40 as of Dec 31, 2022.

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 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 third-quarter 2023 numbers on Oct 26.

Over the past week, the Zacks Consensus Estimate for LPL Financial’s quarterly earnings has been unchanged at $3.59, implying a 14.7% rise from the prior-year reported number.

Hercules Capital, Inc. (HTGC - Free Report) is scheduled to announce quarterly numbers on Nov 2.

Over the past seven days, the Zacks Consensus Estimate for Hercules Capital’s third-quarter earnings has been unchanged at 50 cents. The estimate indicates a jump of 28.2% from the prior-year quarter’s reported number.

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