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Ares Capital (ARCC) Stock Up 2.3% Despite Q1 Earnings Miss
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Ares Capital Corporation’s (ARCC - Free Report) first-quarter 2020 core earnings of 41 cents per share missed the Zacks Consensus Estimate of 43 cents. Also, the bottom line declined 14.6% year over year.
The results were adversely impacted by a decline in total investment income. However, lower expenses and decent portfolio activity acted as tailwinds. Further, the company’s efforts to strengthen the balance sheet and liquidity position seem to have cheered investors. Subsequently, its shares rose 2.3% following the earnings release.
GAAP net loss was $612 million or $1.42 per share versus GAAP net income of $214 million or 50 cents per share in the prior-year quarter.
Total Investment Income & Expenses Down
Total investment income was $369 million, down 1.1% year over year. The fall was mainly due to lower capital structuring service fees. Also, the figure lagged the Zacks Consensus Estimate of $381.8 million.
Total expenses declined 25.8% year over year to $132 million.
Net investment income grew 16.4% year over year to $234 million.
Strong Balance Sheet
As of Mar 31, 2020, the company’s cash and cash equivalents (including restricted cash) totaled $1.12 billion, up significantly from $176 million on Dec 31, 2019.
During the first quarter, the company enhanced its liquidity profile by issuing $750 million in unsecured investment grade notes at a record low coupon, increasing bank borrowing capacity by $565 million and extending the maturity on $5 billion of revolving facilities to 2025.
Moreover, Ares Capital had roughly $2.1 billion available for additional borrowings under the existing credit facilities as of March 31, 2020. Total outstanding debt was $8.18 billion, up from $6.97 billion as of Dec 31, 2019.
As of Mar 31, 2020, Ares Capital’s total assets amounted to $15.81 billion and stockholders’ equity was $6.58 billion.
Further, net asset value was $15.58 per share, down from $17.32 as of Dec 31, 2019.
Robust Portfolio Activities
Gross commitments worth $1.27 billion were made during the first quarter to 17 new and 20 existing portfolio companies. This compares with $1.95 billion worth of gross commitments in the prior-year quarter.
Further, during the quarter, the company exited $918 million of commitments compared with $1.35 billion a year ago.
The fair value of Ares Capital’s portfolio investments as of Mar 31, 2020 was $14.4 billion, which included $13.0 billion in accruing debt and other income producing securities.
Share Repurchase Update
In March, Ares Capital repurchased nearly 8.5 million shares at an average price of $11.83 per share. As of Mar 31, 2020, approximately $393 million remained available for repurchases under the program.
Our Take
Increase in demand for customized financing is expected to continue supporting Ares Capital. However, elevated expense levels may hurt the bottom line.
Ares Capital Corporation Price, Consensus and EPS Surprise
Performance & Earnings Release Dates of Other Finance Stocks
Hercules Capital Inc.’s (HTGC - Free Report) first-quarter 2020 net investment income of 37 cents per share outpaced the Zacks Consensus Estimate by a penny. The bottom line also grew 23.3% from the year-ago reported figure.
Main Street Capital Corporation (MAIN - Free Report) and PennantPark Investment Corporation (PNNT - Free Report) are scheduled to announce the upcoming quarterly results on May 7 and May 11, respectively.
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Ares Capital (ARCC) Stock Up 2.3% Despite Q1 Earnings Miss
Ares Capital Corporation’s (ARCC - Free Report) first-quarter 2020 core earnings of 41 cents per share missed the Zacks Consensus Estimate of 43 cents. Also, the bottom line declined 14.6% year over year.
The results were adversely impacted by a decline in total investment income. However, lower expenses and decent portfolio activity acted as tailwinds. Further, the company’s efforts to strengthen the balance sheet and liquidity position seem to have cheered investors. Subsequently, its shares rose 2.3% following the earnings release.
GAAP net loss was $612 million or $1.42 per share versus GAAP net income of $214 million or 50 cents per share in the prior-year quarter.
Total Investment Income & Expenses Down
Total investment income was $369 million, down 1.1% year over year. The fall was mainly due to lower capital structuring service fees. Also, the figure lagged the Zacks Consensus Estimate of $381.8 million.
Total expenses declined 25.8% year over year to $132 million.
Net investment income grew 16.4% year over year to $234 million.
Strong Balance Sheet
As of Mar 31, 2020, the company’s cash and cash equivalents (including restricted cash) totaled $1.12 billion, up significantly from $176 million on Dec 31, 2019.
During the first quarter, the company enhanced its liquidity profile by issuing $750 million in unsecured investment grade notes at a record low coupon, increasing bank borrowing capacity by $565 million and extending the maturity on $5 billion of revolving facilities to 2025.
Moreover, Ares Capital had roughly $2.1 billion available for additional borrowings under the existing credit facilities as of March 31, 2020. Total outstanding debt was $8.18 billion, up from $6.97 billion as of Dec 31, 2019.
As of Mar 31, 2020, Ares Capital’s total assets amounted to $15.81 billion and stockholders’ equity was $6.58 billion.
Further, net asset value was $15.58 per share, down from $17.32 as of Dec 31, 2019.
Robust Portfolio Activities
Gross commitments worth $1.27 billion were made during the first quarter to 17 new and 20 existing portfolio companies. This compares with $1.95 billion worth of gross commitments in the prior-year quarter.
Further, during the quarter, the company exited $918 million of commitments compared with $1.35 billion a year ago.
The fair value of Ares Capital’s portfolio investments as of Mar 31, 2020 was $14.4 billion, which included $13.0 billion in accruing debt and other income producing securities.
Share Repurchase Update
In March, Ares Capital repurchased nearly 8.5 million shares at an average price of $11.83 per share. As of Mar 31, 2020, approximately $393 million remained available for repurchases under the program.
Our Take
Increase in demand for customized financing is expected to continue supporting Ares Capital. However, elevated expense levels may hurt the bottom line.
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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance & Earnings Release Dates of Other Finance Stocks
Hercules Capital Inc.’s (HTGC - Free Report) first-quarter 2020 net investment income of 37 cents per share outpaced the Zacks Consensus Estimate by a penny. The bottom line also grew 23.3% from the year-ago reported figure.
Main Street Capital Corporation (MAIN - Free Report) and PennantPark Investment Corporation (PNNT - Free Report) are scheduled to announce the upcoming quarterly results on May 7 and May 11, respectively.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
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