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Why Is Ares Capital (ARCC) Up 4.1% Since Last Earnings Report?
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It has been about a month since the last earnings report for Ares Capital (ARCC - Free Report) . Shares have added about 4.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Ares Capital due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Ares Capital Q3 Earnings Miss as Expenses Increase Y/Y
Ares Capital’s third-quarter 2024 core earnings of 58 cents per share missed the Zacks Consensus Estimate by a penny. The bottom line reflected a decline of 1.7% from the prior-year quarter.
The results were primarily affected by an increase in expenses. Nonetheless, an improvement in the total investment income and the company’s robust portfolio activities supported the results to some extent.
GAAP net income was $394 million or 62 cents per share, down from $500 million or 89 cents per share in the prior-year quarter.
Total Investment Income Improves, Expenses Rise
Total investment income was $775 million, up 18.3% year over year. The rise was largely driven by an increase in interest income from investments, capital structuring service fees and dividend income. The top line surpassed the Zacks Consensus Estimate of $767 million.
Total quarterly expenses were $402 million, up 10.7% year over year. The increase was due to a rise in all the components except capital gains incentive fee charges and administrative fees.
Portfolio Activities Robust
In the third quarter, the company made gross commitments worth $3.92 billion to new and existing portfolio companies. This compares with $1.6 billion of gross commitments in the prior-year quarter.
Further, the company exited $2.6 billion of commitments compared with $1.28 billion a year ago.
The fair value of Ares Capital’s portfolio investments was $25.9 billion as of Sept. 30, 2024.
The fair value of accruing debt and other income-producing securities was $23.3 billion.
Balance Sheet Strong
As of Sept. 30, 2024, the company’s cash and cash equivalents totaled $486 million, down from $535 million as of Dec. 31, 2023.
Ares Capital had $4.5 billion available for additional borrowings under the existing credit facilities as of Sept. 30, 2024. Total outstanding debt was $13.5 billion.
As of Sept. 30, 2024, total assets were $27.1 billion and stockholders’ equity was $12.8 billion.
Net asset value was $19.77 per share, up from $19.24 as of Dec. 31, 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Ares Capital has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ares Capital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Ares Capital (ARCC) Up 4.1% Since Last Earnings Report?
It has been about a month since the last earnings report for Ares Capital (ARCC - Free Report) . Shares have added about 4.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Ares Capital due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Ares Capital Q3 Earnings Miss as Expenses Increase Y/Y
Ares Capital’s third-quarter 2024 core earnings of 58 cents per share missed the Zacks Consensus Estimate by a penny. The bottom line reflected a decline of 1.7% from the prior-year quarter.
The results were primarily affected by an increase in expenses. Nonetheless, an improvement in the total investment income and the company’s robust portfolio activities supported the results to some extent.
GAAP net income was $394 million or 62 cents per share, down from $500 million or 89 cents per share in the prior-year quarter.
Total Investment Income Improves, Expenses Rise
Total investment income was $775 million, up 18.3% year over year. The rise was largely driven by an increase in interest income from investments, capital structuring service fees and dividend income. The top line surpassed the Zacks Consensus Estimate of $767 million.
Total quarterly expenses were $402 million, up 10.7% year over year. The increase was due to a rise in all the components except capital gains incentive fee charges and administrative fees.
Portfolio Activities Robust
In the third quarter, the company made gross commitments worth $3.92 billion to new and existing portfolio companies. This compares with $1.6 billion of gross commitments in the prior-year quarter.
Further, the company exited $2.6 billion of commitments compared with $1.28 billion a year ago.
The fair value of Ares Capital’s portfolio investments was $25.9 billion as of Sept. 30, 2024.
The fair value of accruing debt and other income-producing securities was $23.3 billion.
Balance Sheet Strong
As of Sept. 30, 2024, the company’s cash and cash equivalents totaled $486 million, down from $535 million as of Dec. 31, 2023.
Ares Capital had $4.5 billion available for additional borrowings under the existing credit facilities as of Sept. 30, 2024. Total outstanding debt was $13.5 billion.
As of Sept. 30, 2024, total assets were $27.1 billion and stockholders’ equity was $12.8 billion.
Net asset value was $19.77 per share, up from $19.24 as of Dec. 31, 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Ares Capital has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ares Capital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.