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Ares Capital (ARCC) Q4 Earnings Meet, Stock Declines 1.2%

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Shares of Ares Capital Corporation (ARCC - Free Report) declined 1.2% in response to fourth-quarter and 2019 results. The company’s core earnings of 45 cents per share matched the Zacks Consensus Estimate and were on par with the year-ago quarter figure.

Results reflected improvement in total investment income and decent portfolio activity. However, higher expenses hurt results to some extent. Also, Ares Capital exited the quarter with higher debt level.

GAAP net income was $204 million or 48 cents per share, up from $153 million or 36 cents per share in the prior-year quarter.

In 2019, core earnings per share of $1.89 lagged the consensus estimate by a penny but improved 12.5% year over year. GAAP net income was $793 million or $1.86 per share, down from $858 million or $2.01 per share in 2018.

Total Investment Income & Expenses Rise

Total investment income in the quarter was $386 million, up 11.9% year over year. The rise reflected an increase in interest income from investments and dividend income. However, the figure lagged the Zacks Consensus Estimate of $393.2 million.

In 2019, total investment income grew 14.3% to $1.53 billion. The figure was relatively in line with the consensus estimate.

Total expenses jumped 28.7% year over year to $193 million. The increase was primarily due to rise in almost all expense components.

Net investment income declined 6.4% year over year to $193 million.

Strong Balance Sheet

As of Dec 31, 2019, the company’s cash and cash equivalents totaled $176 million, down from $296 million as of Dec 31, 2018. Total outstanding debt was $7 billion, up from $5.2 billion as of Dec 31, 2018.

As of Dec 31, 2019, Ares Capital’s total assets amounted to $14.9 billion and stockholders’ equity was $7.5 billion.

Further, net asset value was $17.32 per share, up from $17.12.

Portfolio Activities

New gross commitments worth $1.6 billion were made during the quarter, down from $2.7 billion in the prior-year quarter. The company exited $1.2 billion of commitments compared with $1 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. However, elevated expenses (primarily resulting from expansion plans) may hurt the bottom line.

Ares Capital Corporation Price, Consensus and EPS Surprise

 

Ares Capital Corporation Price, Consensus and EPS Surprise

Ares Capital Corporation price-consensus-eps-surprise-chart | 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

Hercules Capital Inc (HTGC - Free Report) , FS KKR Capital Corp. (FSK - Free Report) and Capitala Finance Corp. (CPTA - Free Report) are scheduled to announce results on Feb 20, Feb 28 and Mar 2, respectively.

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