Back to top

Why Ares Capital (ARCC) is Worth Adding to Your Portfolio Now

Read MoreHide Full Article

Favorable economic data, the Fed’s recent rate hikes and tax-reform bill benefits have boosted investors’ confidence in banking stocks. Therefore, some of these stocks can be profitable additions to your portfolio, backed by robust fundamentals and encouraging long-term prospects.

Thus, this is the right time to add a few banking stocks to your portfolio. Today, we bring one such stock — Ares Capital Corporation (ARCC - Free Report) — that continues to depict strong fundamentals and improving prospects.

Further, this Zacks Rank #2 (Buy) stock has appreciated more than 7.4% year to date as against the marginal decline registered by the industry.

Also, the company’s Zacks Consensus Estimate for current-year earnings have been revised 2.5% upward, over the last 30 days.

Why the Stock is Worth Buying

Revenue Strength: Ares Capital continues to witness top-line improvement. Since 2013, the company has recorded a continued rise in its sales with some annual volatility, witnessing five-year compound annual growth rate (CAGR) of nearly 7.1% in 2017.

The company’s projected sales growth (F1/F0) of 13.6% (as against the industry average of 5.6%) indicates constant upward momentum in revenues.

Earnings per Share Strength: Ares Capital recorded an average positive earnings surprise of 5.15%, over the trailing four quarters. Also, the company’s long-term (three to five years) estimated EPS growth rate of 3% promises rewards for investors over the long run. Notably, earnings are estimated to grow at a rate of 16.6% for 2018 and 3.9% for 2019.

Efficient Capital Deployment: Ares Capital’s dividend payout policy seems pretty decent. In July 2018, the company hiked its dividend by 2.6%. Before this, it had been paying a quarterly cash dividend of 38 cents per share since September 2012. In order to maintain its RIC status, the company distributes approximates 90% of its taxable income.

Superior ROE: Ares Capital’s Return on Equity (ROE) ratio is 9.34% compared with the industry’s average of 8.99%. This indicates that the company reinvests more efficiently compared to the industry.

Strong Leverage: The debt-to-equity ratio for Ares Capital is 0.62 compared with the S&P 500’s average of 0.67. This indicates greater financial stability for the company and lesser risk for shareholders.

Other Stocks to Consider

Greenhill & Co., Inc. (GHL - Free Report) has been witnessing upward estimate revisions for the past 60 days. Moreover, this Zacks #1 Ranked stock has rallied more than 24% year to date. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

E*TRADE (ETFC - Free Report) has been witnessing upward estimate revisions for the past 60 days. Further, the company’s shares have gained 4.7% year to date. Currently, it sports a Zacks Rank of 1.

Great Southern Bancorp, Inc. (GSBC - Free Report) has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 4.6% year to date. It currently carries a Zacks Rank #2.

More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>

More from Zacks Analyst Blog

You May Like