Yahoo Finance Ares Capital (ARCC) Up 1.7% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Ares Capital (ARCC). Shares have added about 1.7% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.
Ares Capital Q3 Earnings Meet Estimates as Costs Dip Y/Y
Ares Capital’s third-quarter 2022 core earnings of 50 cents per share were in line with the Zacks Consensus Estimate. The bottom line reflected a rise of 6.4% from the prior-year quarter.
Results were aided by an increase in total investment income and lower expenses. The portfolio activity remained solid in the quarter.
GAAP net income was $104 million or 21 cents per share compared with $334 million or 73 cents per share recorded in the prior-year quarter.
Total Investment Income Increases, Expenses Decline
Total investment income was $537 million, up 21.5% year over year. The rise was driven by an increase in dividend income, interest income from investments and other income. The top line beat the Zacks Consensus Estimate of $511.4 million.
Total expenses were $235 million, down 7.1% year over year.
Portfolio Activities Solid
Gross commitments worth $2.2 billion were made in the third quarter to new and existing portfolio companies. This compares with $3.1 billion worth of gross commitments in the prior-year quarter.
In the reported quarter, the company exited $2 billion of commitments compared with $2.3 billion a year ago.
The fair value of Ares Capital’s portfolio investments was $21.3 billion as of Sep 30, 2022. The fair value of accruing debt and other income-producing securities was $19.2 billion.
Balance Sheet Strong
As of Sep 30, 2022, the company’s cash and cash equivalents totaled $257 million, down from $372 million as of Dec 31, 2021.
Ares Capital had $4.3 billion available for additional borrowings under the existing credit facilities as of Sep 30, 2022. Total outstanding debt was $11.9 billion.
As of Sep 30, 2022, total assets were $22 billion and stockholders’ equity was $9.4 billion.
Net asset value was $18.56 per share, down from $18.96 as of Dec 31, 2021.
Outlook
The company expects a 100 basis point increase in market rates from the Sep 30, 2022 levels to add 7 cents per share quarterly or 27 cents per share annually to net interest earnings.
Management expects an increasing amount of undistributed earnings spillover when it closes out fiscal 2022 compared to 2021.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 6.35% due to these changes.
VGM Scores
Currently, Ares Capital has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Ares Capital Corporation (ARCC) : Free Stock Analysis Report
