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Ares Capital (ARCC) Stock Gains 1.9% on Q1 Earnings Beat

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Shares of Ares Capital Corporation (ARCC - Free Report) rallied 1.9% following the release of its first-quarter 2019 results. Core earnings of 48 cents per share surpassed the Zacks Consensus Estimate of 42 cents. The bottom line increased 26.3% from the year-ago quarter.

Results reflected improved total investment income and healthy portfolio activity. Further, stable expense level was a positive for the company. However, Ares Capital exited the reported quarter with higher debt level.

GAAP net income was $214 million or 50 cents per share, down from $242 million or 57 cents per share in the prior-year quarter.

Total Investment Income Improves, Expenses Stable

Total investment income amounted to $373 million, up 17.7% year over year. The rise was driven by an increase in all income components except other income. Also, the figure surpassed the Zacks Consensus Estimate of $338 million.

Total expenses were stable year over year at $178 million. The increase in interest and credit facility fees, base management fees and income based fees were offset by lower administrative fees, capital gains incentive fees and other general and administrative costs.

Net investment income surged 39.6% year over year to $201 million.

Strong Balance Sheet

As of Mar 31, 2019, the company’s cash and cash equivalents totaled $572 million, up from $296 million as of Dec 31, 2018. Total outstanding debt was $6.2 billion, up from $5.2 billion.

As of Mar 31, 2019, Ares Capital’s total assets amounted to $13.96 billion, up 8.3% sequentially. Stockholders’ equity was $7.74 billion as of Mar 31, 2019, up from $7.30 billion as of Dec 31, 2018.

Further, net asset value was $17.21 per share, up from $17.12at the end of December.

Portfolio Activities

New gross commitments worth $1.95 billion were made during the quarter, up from nearly $1.79 billion recorded in the prior-year quarter. The company exited $1.35 billion of commitments in the reported quarter compared with $1.34 billion a year ago.

Our Take

Ares Capital’s investment income growth is expected to continue, driven by the rise in demand for customized financing and improving economy. Further, the company’s steady capital deployment plan reflects a strong liquidity position. However, elevated expenses (primarily due to expansion plans) may hurt the bottom line. Also, presence of high debt levels remains a major concern.

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 of Other Finance Stocks

Solar Senior Capital Ltd. (SUNS - Free Report) , Garrison Capital Inc. (GARS - Free Report) and BlackRock TCP Capital Corp. (TCPC - Free Report) are scheduled to announce results on May 6, May 7 and May 8, respectively.

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