4 Reasons to Invest in Ares Capital (ARCC) Stock Right Now
Ares Capital Corporation ARCC remains well-poised for top-line growth, supported by the rise in demand for customized financing. An increase in investment commitments will likely aid the company’s growth. Its steady capital deployments will help enhance shareholder value. Thus, it seems to be a wise idea to add the stock to your portfolio now.
The Zacks Consensus Estimate for ARCC’s current-year earnings has been revised 2.5% upward over the past 30 days, reflecting analysts’ optimism regarding its earnings growth potential. Thus, the company currently carries a Zacks Rank #2 (Buy).
So far this year, the company’s shares have lost 6.7% compared with a decline of 11.6% for the industry.
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Here are a few aspects that make Ares Capital an attractive investment option now.
Revenue Strength: The company’s total investment income witnessed a five-year (2017-2021) compound annual growth rate (CAGR) of 11.9%. The increase was primarily driven by the acquisition of American Capital, which boosted investment income substantially. The uptrend in total investment income continued in the first nine months of 2022.
ARCC is expected to continue to witness a rise in investment income in the quarters ahead, given the regulatory changes and rising demand for customized financing. Its revenues are projected to grow 11.8% for 2022 and 17.5% for 2023.
Earnings per Share (EPS) Growth: Ares Capital witnessed earnings growth of 5.6% over the last three-five years. The uptrend is likely to continue in the near term, as reflected by the company’s projected EPS growth rate of 24.1% for 2022 and 9.4% for 2023.
Steady Capital Deployments: In order to maintain its RIC status, the company distributes approximately 90% of its taxable income. In October 2022, it announced a dividend hike of 11.6%, which followed a 2.4% hike in July, a 2.4% hike in February, a 2.5% hike in July 2021 and a 2.6% hike in February 2019.
Also, the company has a share repurchase program worth $500 million in place, which will expire on Feb 15, 2023. As of Sep 30, 2022, the entire repurchase authorization remained available. Given its earnings strength, ARCC is expected to be able to sustain efficient capital deployment plans and, hence, continue to enhance shareholder value.
Superior Return on Equity (ROE): Ares Capital’s ROE is 10.33%, higher than the industry average of 9.19%. This indicates that the company reinvests its cash more efficiently than the industry.
Other Key Picks
A couple of other top-ranked stocks from the finance space are Capital Southwest CSWC and AssetMark Financial AMK.
The Zacks Consensus Estimate for Capital Southwest’s current fiscal-year earnings has moved 4.3% higher in the past 30 days. In the past month, its shares have lost 2.9%. Currently, Capital Southwest carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AssetMark Financial also carries a Zacks Rank #2 at present. Its earnings estimates for the current year have been revised 5.5% upward over the past 30 days. In the past month, its shares have rallied 17.4%.
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Ares Capital Corporation (ARCC) : Free Stock Analysis Report
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