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Ares Capital (ARCC) Stock Gains 5.5% on Q3 Earnings Beat

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Shares of Ares Capital Corporation (ARCC - Free Report) gained 5.5%, following the release of the company’s third-quarter 2018 results. Core earnings of 45 cents per share surpassed the Zacks Consensus Estimate of 40 cents. The bottom line increased 25% 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 was $209 million or 49 cents per share, up from $139 million or 33 cents per share in the prior-year quarter.

Total Investment Income Improves, Expenses Rise

Total investment income amounted to $342 million, up 16.3% year over year. The rise was driven by an increase in all income components. Moreover, the figure surpassed the Zacks Consensus Estimate of $322.7 million.

Total expenses witnessed a year-over-year increase of 10.3% to $161 million. The increase was due to rise in almost all expense components except for other general and administrative expenses, and professional fees and other costs related to the acquisition of American Capital.

Net investment income surged 20.9% year over year to $185 million.

Strong Balance Sheet

As of Sep 30, 2018, the company’s cash and cash equivalents totaled $799 million, up from $316 million as of Dec 31, 2017. Total outstanding debt was $4.5 billion, slightly down from $4.9 billion on Dec 31, 2017.

As of Sep 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 Sep 30, 2018, up from $7.1 billion as of Dec 31, 2017.

Further, net asset value was $17.16 per share, up from $16.65 as of Dec 31, 2017.

Portfolio Activities

New commitments worth $1.9 billion were made during the reported quarter, up from nearly $1.5 billion recorded in the prior-year quarter. The company exited $1.9 billion of commitments in the reported quarter compared with $1.6 billion in the year-ago quarter.

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 the company’s bottom-line growth to some extent.

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 #2 (Buy). 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) , FS Investment Corporation and TCP Capital Corp. (TCPC - Free Report) are scheduled to announce results on Nov 6, Nov 7 and Nov 8, respectively.

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