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Ares Capital (ARCC) Beats on Q3 Earnings Despite Higher Costs

Zacks Equity Research

Ares Capital Corporation’s ARCC third-quarter 2019 core earnings of 48 cents per share surpassed the Zacks Consensus Estimate of 46 cents. Also, the bottom line rose 6.7% from the year-ago quarter.

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

GAAP net income was $175 million or 41 cents per share, down from $209 million or 49 cents per share in the prior-year quarter.

Total Investment Income & Expenses Rise

Total investment income amounted to $387 million, up 13.2% year over year. The rise reflected an increase in interest income from investments and dividend income. Also, the figure beat the Zacks Consensus Estimate of $371.4 million.

Total expenses increased 11.8% year over year to $180 million. The increase was primarily due to rise in almost all expense components.

Net investment income grew 14.6% year over year to $212 million.

Strong Balance Sheet

As of Sep 30, 2019, the company’s cash and cash equivalents totaled $253 million, down from $296 million as of Dec 31, 2018. Total outstanding debt was $6.6 billion, up from $5.2 billion as of Dec 31, 2018.

As of Sep 30, 2019, Ares Capital’s total assets amounted to $14.5 billion and stockholders’ equity was $7.4 billion.

Further, net asset value was $17.26 per share, up from $17.12 at the end of December.

Portfolio Activities

New gross commitments worth $2.4 billion were made during the quarter, up from $1.9 billion recorded in the prior-year quarter. The company exited $1.4 billion of commitments in the quarter compared with $1.9 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.

Performance & Earnings Release Dates of Other Finance Stocks

Hercules Capital Inc’s HTGC third-quarter 2019 net investment income of 37 cents per share outpaced the Zacks Consensus Estimate of 34 cents. The bottom line was 19.4% above the year-ago figure.

Capitala Finance Corp. CPTA and FS KKR Capital Corp. FSK are scheduled to announce results on Nov 4 and Nov 7, respectively.

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