It has been about a month since the last earnings report for Ares Capital (ARCC - Free Report) . Shares have added about 0.7% 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 catalysts.
Ares Capital Q2 Earnings Beat Estimates as Revenues Rise
Ares Capital’s second-quarter 2019 core earnings of 49 cents per share surpassed the Zacks Consensus Estimate of 44 cents. Also, the bottom line increased 25.6% from the year-ago quarter.
Results reflected improved total investment income and solid portfolio activity. However, rise is expenses were on the downside. Also, Ares Capital exited the reported quarter with higher debt level.
GAAP net income was $200 million or 47 cents per share, down from $254 million or 60 cents per share in the prior-year quarter.
Total Investment Income & Expenses Rise
Total investment income amounted to $382 million, up 14.7% year over year. The rise was driven by an increase in all income components except other income. Also, the figure beat the Zacks Consensus Estimate of $362.5 million.
Total expenses increased 2.9% year over year to $178 million. Increase in interest and credit facility fees, base management fees, income-based fees, and other general and administrative costs was partially offset by lower administrative fees and capital loss incentive fees.
Net investment income jumped 28.4% year over year to $208 million.
Strong Balance Sheet
As of Jun 30, 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 billion, up from $5.2 billion.
As of Jun 30, 2019, Ares Capital’s total assets amounted to $13.85 billion and stockholders’ equity was $7.37 billion.
Further, net asset value was $17.27 per share, up from $17.12 at the end of December.
New gross commitments worth $1.31 billion were made during the quarter, down from $1.62 billion recorded in the prior-year quarter. The company exited $1.35 billion of commitments in the quarter compared with $2.22 billion a year ago.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
Currently, Ares Capital has a great Growth Score of A, a grade with the same score on the momentum front. However, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Ares Capital has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.