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Ares Capital (ARCC) Stock Gains 2.7% on Q4 Earnings Beat

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Shares of Ares Capital Corporation ARCC gained 2.7%, following the release of its fourth-quarter and 2020 results. Core earnings of 54 cents per share for the reported quarter surpassed the Zacks Consensus Estimate of 40 cents. Moreover, the bottom line reflects a rise of 20% year over year.

In the reported quarter, the company recorded a rise in total investment income along with higher expenses. Moreover, solid portfolio activity supported results to an extent. Further, the company’s liquidity position remained strong, which was a positive.

GAAP net income was $378 million or 89 cents per share, up from $204 million or 48 cents per share recorded in the prior-year quarter.

For 2020, core earnings per share of $1.74 beat the Zacks Consensus Estimate of $1.59. However, the bottom line declined 7.9% from the previous year. GAAP net income was $484 million or $1.14 per share, down from $793 million or $1.86 per share recorded in the prior year.

Total Investment Income Improves, Expenses Rise

Quarterly total investment income was $440 million, up 14% year over year. The rise was driven by an increase in capital structuring service fees and other income. Moreover, the reported figure surpassed the Zacks Consensus Estimate of $359.3 million.

For the year, total investment income was $1.51 billion, down from $1.53 billion recorded in 2019. However, the top-line figure beat the Zacks Consensus Estimate of $1.43 billion.

Total quarterly expenses were $204 million, up 5.7% from the prior-year level.

Net investment income improved 20.5% year over year to $229 million.

Balance Sheet Strong

As of Dec 31, 2020, the company’s cash and cash equivalents (including restricted cash) totaled $326 million, up from $176 million as of Dec 31, 2019.

Moreover, Ares Capital had $3.3 billion available for additional borrowings under the existing credit facilities as of Dec 31, 2020. Total outstanding debt was $8.49 billion, up from $6.97 billion as of Dec 31, 2019.

As of Dec 31, 2020, Ares Capital’s total assets amounted to $16.20 billion and stockholders’ equity was $7.18 billion.

Further, net asset value was $16.97 per share, down from $17.32 as of Dec 31, 2019.

Portfolio Activities Strong

Gross commitments worth $3.86 billion were made during the fourth quarter to new and existing portfolio companies. This compares with $1.61 billion worth of gross commitments in the prior-year quarter.

Further, in the quarter, the company exited $3.03 billion of commitments compared with $1.22 billion a year ago.

The fair value of Ares Capital’s portfolio investments was $15.52 billion as of Dec 31, 2020, which included $13.7 billion in accruing debt and other income-producing securities.

Our Take

An increase in demand for customized financing is expected to continue supporting Ares Capital. However, elevated expense levels (as witnessed in the fourth 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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates of Other Finance Stocks

Hercules Capital Inc. HTGC is scheduled to announce quarterly results on Feb 18. Main Street Capital Corporation MAIN and FS KKR Capital Corp. FSK are scheduled to announce results on Feb 25 and Mar 1, respectively.

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Ares Capital Corporation (ARCC) : Free Stock Analysis Report

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