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Ares Capital (ARCC) Q1 Earnings & Revenues Beat, Stock Down

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Ares Capital Corporation’s ARCC first-quarter 2021 core earnings of 43 cents per share surpassed the Zacks Consensus Estimate of 42 cents. Moreover, the bottom line reflects a rise of 4.9% from the prior-year quarter’s reported number.

Results were aided by a rise in total investment income. Moreover, portfolio activity remained solid in the quarter. However, an increase in expenses hurt results to some extent. Probably because of this, shares of the company declined 1.2% following the earnings release.

GAAP net income was $373 million or 87 cents per share against a net loss of $612 million or $1.42 per share recorded in the prior-year quarter.

Total Investment Income Improves, Expenses Rise

Total investment income was $390 million, up 5.7% year over year. The rise was driven by an increase in capital structuring service fees, dividend income and other income. Moreover, the reported figure surpassed the Zacks Consensus Estimate of $383.7 million.

Total expenses were $241 million, up 82.6% from the prior-year level.

Net investment income declined 38.5% year over year to $144 million.

Balance Sheet Strong

As of Mar 31, 2021, the company’s cash and cash equivalents (including restricted cash) totaled $356 million, up from $326 million as of Dec 31, 2020.

Moreover, Ares Capital had $4.9 billion available for additional borrowings under the existing credit facilities as of Mar 31, 2021. Total outstanding debt was $8.1 billion.

As of Mar 31, 2021, Ares Capital’s total assets amounted to $16 billion and stockholders’ equity was $7.6 billion.

Further, net asset value was $17.45 per share, up from $16.97 as of Dec 31, 2020.

Portfolio Activities Strong

Gross commitments worth $1.8 billion were made in the first quarter to new and existing portfolio companies. This compares with $1.3 billion worth of gross commitments in the prior-year quarter.

Further, in the quarter, the company exited $2.1 billion of commitments compared with $918 million a year ago.

The fair value of Ares Capital’s portfolio investments was $15.4 billion as of Mar 31, 2021, which included $13.6 billion in accruing debt and other income-producing securities.

Our Take

An increase in the demand for customized financing is expected to continue supporting Ares Capital. However, elevated expense levels (as witnessed in the first quarter as well) 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 and EPS Surprise

Ares Capital Corporation price-consensus-eps-surprise-chart | Ares Capital Corporation Quote

Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates of Other Finance Stocks

Main Street Capital Corporation MAIN and FS KKR Capital Corp. FSK are scheduled to announce quarterly results on May 6 and May 10, respectively. Gladstone Investment Corporation GAIN is scheduled to announce the March-end quarter’s results on May 11.

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Ares Capital Corporation (ARCC) : Free Stock Analysis Report

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FS KKR Capital Corp. (FSK) : Free Stock Analysis Report

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