We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Customized Financing Need Aids Ares Capital (ARCC), Costs Ail
Read MoreHide Full Article
Ares Capital Corporation (ARCC - Free Report) is poised for top-line growth, driven by the rise in the demand for customized financing. An increase in investment commitments will likely keep supporting financials.
However, while the company’s expansion plans are expected to enhance growth prospects, they might lead to increased expenses. Elevated expenses will, in turn, hurt the bottom line to an extent.
The Zacks Consensus Estimate for the company’s current-year earnings has been unchanged over the past 30 days. This reflects that analysts are not that optimistic about its earnings growth potential. Thus, ARCC currently carries a Zacks Rank #3 (Hold).
In the past six months, shares of the company have gained 7.8% compared with the industry’s growth of 5.5%.
Image Source: Zacks Investment Research
Looking at its fundamentals, Ares Capital’s total investment income witnessed a five-year (2018-2023) compound annual growth rate (CAGR) of 14.3%, primarily driven by the acquisition of American Capital. Given the regulatory changes and rising demand for customized financing, the company is expected to continue to witness a rise in investment income. We project total investment income to see a CAGR of 2.3% by 2026.
Moreover, we are encouraged by the company’s concentrated focus on its credit performance. In 2023, 2022, 2021, 2020 and 2019, the company originated $6 billion, $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, it will likely continue witnessing a steady rise in investment commitments.
Ares Capital’s capital distribution policy seems impressive. In order to maintain its RIC status, the company distributes approximately 90% of its taxable income. In October 2022, it announced a dividend hike of 11.6%, which followed a 2.4% hike in July, a 2.4% hike in February, a 2.5% hike in July 2021 and a 2.6% hike in February 2019.
Given its earnings strength, the company is expected to be able to sustain efficient capital distribution plans and, hence, continue to enhance shareholder value.
However, Ares Capital’s expenses have witnessed a CAGR of 16.3% over the five years ended 2023. This was mainly led by a rise in interest and credit facility fees, and income-based fees. Overall costs are likely to remain elevated in the near term as the company continues to expand.
We project ARCC's total expenses to rise 9.2%, 3.4% and 0.1% in 2024, 2025 and 2026, respectively.
To comply with regulatory requirements, Ares Capital invests primarily in the United States-based companies and, to a lesser extent, in foreign ones. Persistent regulatory constraints may lead to increased costs of funding and, thereby, limit the company’s access to capital markets.
Stocks Worth a Look
A couple of better-ranked stocks from the finance space are SEI Investments Company (SEIC - Free Report) and Commerce Bancshares, Inc. (CBSH - Free Report) .
Earnings estimates for SEIC have been revised 3.7% upward for the current year over the past 60 days. The company’s share price has increased 14% over the past six months. SEIC currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Commerce Bancshares also has a Zacks Rank of 2 at present. Its earnings estimates have been revised upward by 2.8% for the current year over the past 60 days. In the past six months, CBSH’s share price has increased 12.5%.
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Shutterstock
Customized Financing Need Aids Ares Capital (ARCC), Costs Ail
Ares Capital Corporation (ARCC - Free Report) is poised for top-line growth, driven by the rise in the demand for customized financing. An increase in investment commitments will likely keep supporting financials.
However, while the company’s expansion plans are expected to enhance growth prospects, they might lead to increased expenses. Elevated expenses will, in turn, hurt the bottom line to an extent.
The Zacks Consensus Estimate for the company’s current-year earnings has been unchanged over the past 30 days. This reflects that analysts are not that optimistic about its earnings growth potential. Thus, ARCC currently carries a Zacks Rank #3 (Hold).
In the past six months, shares of the company have gained 7.8% compared with the industry’s growth of 5.5%.
Image Source: Zacks Investment Research
Looking at its fundamentals, Ares Capital’s total investment income witnessed a five-year (2018-2023) compound annual growth rate (CAGR) of 14.3%, primarily driven by the acquisition of American Capital. Given the regulatory changes and rising demand for customized financing, the company is expected to continue to witness a rise in investment income. We project total investment income to see a CAGR of 2.3% by 2026.
Moreover, we are encouraged by the company’s concentrated focus on its credit performance. In 2023, 2022, 2021, 2020 and 2019, the company originated $6 billion, $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, it will likely continue witnessing a steady rise in investment commitments.
Ares Capital’s capital distribution policy seems impressive. In order to maintain its RIC status, the company distributes approximately 90% of its taxable income. In October 2022, it announced a dividend hike of 11.6%, which followed a 2.4% hike in July, a 2.4% hike in February, a 2.5% hike in July 2021 and a 2.6% hike in February 2019.
Given its earnings strength, the company is expected to be able to sustain efficient capital distribution plans and, hence, continue to enhance shareholder value.
However, Ares Capital’s expenses have witnessed a CAGR of 16.3% over the five years ended 2023. This was mainly led by a rise in interest and credit facility fees, and income-based fees. Overall costs are likely to remain elevated in the near term as the company continues to expand.
We project ARCC's total expenses to rise 9.2%, 3.4% and 0.1% in 2024, 2025 and 2026, respectively.
To comply with regulatory requirements, Ares Capital invests primarily in the United States-based companies and, to a lesser extent, in foreign ones. Persistent regulatory constraints may lead to increased costs of funding and, thereby, limit the company’s access to capital markets.
Stocks Worth a Look
A couple of better-ranked stocks from the finance space are SEI Investments Company (SEIC - Free Report) and Commerce Bancshares, Inc. (CBSH - Free Report) .
Earnings estimates for SEIC have been revised 3.7% upward for the current year over the past 60 days. The company’s share price has increased 14% over the past six months. SEIC currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Commerce Bancshares also has a Zacks Rank of 2 at present. Its earnings estimates have been revised upward by 2.8% for the current year over the past 60 days. In the past six months, CBSH’s share price has increased 12.5%.