It seems to be a wise idea to add Ares Capital Corporation ARCC stock to your portfolio now, given its strong liquidity position and robust loan originations. Moreover, the company’s efficient capital deployment actions are expected to boost shareholder value.
In fact, the company’s Zacks Consensus Estimate for current-year earnings has been revised 1.8% upward over the past 30 days, reflecting analysts’ optimism regarding its earnings growth potential. Thus, the stock currently carries a Zacks Rank #2 (Buy).
Notably, the stock has gained a little more than 10% in the past year. Given the positive estimate revisions and a favorable Zacks Rank, this price performance is expected to improve further.
Here are a few other aspects that make Ares Capital an attractive investment option now.
Revenue Strength: Ares Capital’s total investment income witnessed a five-year (2014-2018) CAGR of 7.8%, driven mainly by the acquisition of American Capital in 2017. Moreover, given the improvement in economy and regulatory changes, the company’s top line is expected to improve further.
Its projected sales growth rates of 4.3% for 2019 and 6.7% for 2020 indicate constant upward momentum in revenues.
Earnings per Share (EPS) Growth: Ares Capital recorded average positive earnings surprise of 6.9% over the trailing four quarters. Also, the company’s long-term (three to five years) estimated EPS growth rate of 3% promises rewards for investors over the long run. Notably, earnings are estimated to grow at a rate of 1.8% in 2019 and 2.1% in 2020.
Efficient Capital Deployment: Ares Capital’s dividend payout policy seems pretty decent. Recently, the company hiked its dividend by 2.6%. Additionally, it declared an additional 8 cents per share of dividends, which will be distributed in equal quarterly payments during 2019. In order to maintain its RIC status, the company distributes approximately 90% of its taxable income.
Superior Return on Equity (ROE): Ares Capital’s ROE is 9.69% compared with the industry’s average of 8.99%. This indicates that the company reinvests its cash more efficiently compared with the industry.
Other Key Picks
Gladstone Investment Corporation’s GAIN Zacks Consensus Estimate for the current fiscal-year earnings has been revised 12.3% upward over the past 60 days. The stock has gained nearly 23% in the past three months. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Saratoga Investment Corp. SAR also carries a Zacks Rank #1. Over the past 60 days, it has witnessed an upward earnings estimate revision of 4.5% for the current fiscal year. Additionally, the stock has gained around 5% in the past three months.
Garrison Capital Inc.’s GARS earnings estimates for 2019 have remained unchanged over the past 60 days. The stock has gained 1.2% in the past three months. Currently, it carries a Zacks Rank of 2.
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