Ares Capital (ARCC) Stock Up on Q2 Earnings & Revenue Beat

Ares Capital Corporation’s ARCC shares rallied nearly 1%, following the release of second-quarter 2020 results. Core earnings of 39 cents per share beat the Zacks Consensus Estimate by a penny. However, the bottom line declined 20.4% year over year.

The results benefited from stable expenses and decent portfolio activity. Further, the company’s liquidity position remained strong during the quarter. However, a decline in total investment income was an undermining factor.

GAAP net income was $277 million or 65 cents per share, up from $200 million or 47 cents per share in the prior-year quarter.

Total Investment Income Down, Expenses Stable

Total investment income was $350 million, down 8.4% year over year. The fall was mainly due to lower capital structuring service fees and interest income from investments. Nonetheless, the figure marginally surpassed the Zacks Consensus Estimate of $349 million.

Total expenses were $180 million, on par with the prior-year level.

Net investment income declined 20.7% year over year to $165 million.

Strong Balance Sheet

As of Jun 30, 2020, the company’s cash and cash equivalents (including restricted cash) totaled $301 million, up significantly from $176 million on Dec 31, 2019.

Moreover, Ares Capital had roughly $3.2 billion available for additional borrowings under the existing credit facilities as of Jun 30, 2020. Total outstanding debt was $7.40 billion, up from $6.97 billion as of Dec 31, 2019.

As of Jun 30, 2020, Ares Capital’s total assets amounted to $14.52 billion and stockholders’ equity was $6.69 billion.

Further, net asset value was $15.83 per share, down from $17.32 as of Dec 31, 2019.

Decent Portfolio Activities

Gross commitments worth $867 million were made during the second quarter to five new and 17 existing portfolio companies. This compares with $1.31 billion worth of gross commitments in the prior-year quarter. 

Further, during the quarter, the company exited $1.48 billion of commitments compared with $1.35 billion a year ago.

The fair value of Ares Capital’s portfolio investments as of Jun 30, 2020 was $13.8 billion, which included $12.3 billion in accruing debt and other income producing securities.

Our Take

Increase in demand for customized financing is expected to continue supporting Ares Capital. However, elevated expense levels 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-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.

Performance & Earnings Release Dates of Other Finance Stocks

Hercules Capital Inc.’s HTGC second-quarter 2020 net investment income of 32 cents per share lagged the Zacks Consensus Estimate by a penny. The bottom line also declined 11.1% from the year-ago reported figure.

Main Street Capital Corporation MAIN and FS KKR Capital Corp. FSK are scheduled to announce the upcoming quarterly results on Aug 6 and Aug 10, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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