A month has gone by since the last earnings report for Ares Capital (ARCC - Free Report) . Shares have added about 0.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Ares Capital due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Ares Capital Q1 Earnings Beat on Higher Revenues
Ares Capital’s first-quarter 2019 net investment income of 47 cents per share surpassed the Zacks Consensus Estimate of 42 cents. The bottom line increased 38.2% 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 $17.12 at the end of December 2018.
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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Ares Capital has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Ares Capital has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.