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Ares Capital (ARCC) Posts In-Line Q2 Earnings, Stock Up

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Shares of Ares Capital Corporation (ARCC - Free Report) have gained 2.1%, following the release of the company’s second-quarter 2018 earnings. Core earnings of 39 cents per share were in-line with the Zacks Consensus Estimate. The bottom line increased 14.7% from the year-ago quarter.

Results reflected improved total investment income and healthy portfolio activity. Moreover, the company exited the reported quarter with higher cash and cash equivalents. However, an increase in expenses was the undermining factor.

GAAP net income for the reported quarter totaled $254 million or 60 cents per share, up from $178 million or 42 cents per share in the prior-year quarter.

Total Investment Income Improves, Expenses Rise

Total investment income amounted to $333 million, up 44.2% year over year. The rise was driven by higher interest income from investments and an increase in dividend income as well as other income. Also, the figure surpassed the Zacks Consensus Estimate of $322.1 million.

Total expenses witnessed year-over-year rise of 7.4% to $175 million. The increase was due to rise in almost all expense components except for other general and administrative expenses.

Net investment income surged 30.6% year over year to $162 million.

Strong Balance Sheet

As of Jun 30, 2018, the company’s cash and cash equivalents totaled $509 million, up from $316 million as of Dec 31, 2017. Total outstanding debt was $4.6 billion, slightly down from $4.9 billion on Dec 31, 2017.

Further, the company had $3.1 billion available for additional borrowings per its present credit facility.

As of Jun 30, 2018, Ares Capital’s total assets amounted to $12.3 billion, marginally down from the Dec 31, 2017 level. Stockholders’ equity was $7.3 billion as of Jun 30, 2018, up from $7.1 billion as of Dec 31, 2017.

Further, net asset value was $17.05 per share, up from $16.65 as of Dec 31, 2017.

Portfolio Activities

New commitments worth $1.6 billion were made during the reported quarter, down from nearly $2 billion recorded in the prior-year quarter. The company exited $2.2 billion of commitments in the reported quarter compared with $1.8 billion in the year-ago quarter.

Dividend Update

Concurrent with the earnings release, the company announced a cash dividend of 39 cents per share for third-quarter 2018, marking a hike of 2.6% from the prior payout. The dividend will be paid on Sep 28 to shareholders of record as of Sep 14.

Our Take

Ares Capital’s investment income growth is expected to continue, driven by the acquisition of American Capital, rise in demand for customized financing and improving economy. Further, its robust liquidity position keeps us optimistic. However, mounting expenses are expected to hurt its bottom-line growth to some extent. Additionally, rate hike remains a concern for the company as debt constitutes a major part of its balance sheet.

Ares Capital Corporation Price, Consensus and EPS Surprise
 

Ares Capital Corporation Price, Consensus and EPS Surprise | Ares Capital Corporation Quote

Currently, Ares Capital carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates for Other Finance Stocks

Garrison Capital Inc. (GARS - Free Report) , TCP Capital Corp. (TCPC - Free Report) and FS Investment Corporation (FSIC - Free Report) are scheduled to announce results on Aug 7, Aug 8 and Aug 9, respectively.

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