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Ares Capital Tops Q3 Earnings on Higher Investment Income

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Ares Capital Corporation 's ARCC third-quarter 2015 core earnings of 41 cents per share surpassed the Zacks Consensus Estimate of 38 cents. Also, earnings improved 2.5% year over year.

Ares Capital Corporation (ARCC) - Earnings Surprise | FindTheCompany

Better-than-expected results reflected a rise in investment income as well as lower operating expenses. Further, improvement in new commitments acted as a tailwind.

GAAP net income summed $116.9 million or 37 cents per share, down from $177.7 million or 57 cents in the prior-year quarter.

Performance Details

Ares Capital's total investment income was $260.9 million, up 3% year over year. The rise was mainly driven by an increase in interest income from investments. Moreover, the figure surpassed the Zacks Consensus Estimate of $252 million.

Total operating expenses fell 7.8% year over year to $129.6 million. The decline was largely attributable to deterioration in capital gains from incentive fees.

Net investment income surged 23.9% year over year to $130.5 million.

As of Sep 30, 2015, the company's cash and cash equivalents totaled $247.1 million, up from $194.6 million as of Dec 31, 2014. Total outstanding debt was $3.7 billion, down from $3.9 billion as of Dec 31, 2014. Further, the company has $2.1 billion available for additional borrowing as per its present credit facility.

As of Sep 30, 2015, Ares Capital's total assets amounted to $9.2 billion compared with $9.5 billion as of Dec 31, 2014. Stockholders' equity stood relatively stable at $5.3 billion as of Sep 30, 2015 compared with the value recorded on Dec 31, 2014.

Further, net asset value was $16.79 per share, down from $16.82 per share as of Dec 31, 2014.

Notably, loans on non-accrual status represented 2.3% of total investment at an amortized cost for the reported quarter.

Portfolio Activities

New commitments worth $1,523.9 million were made during the reported quarter, up from $1,318.0 million recorded in the prior-year quarter. Ares Capital exited $1,340.5 million of commitments in the quarter compared with $654.2 million in the year-ago quarter.

Further, between Oct 1 and Oct 29, additional new investment commitments of $305 million were realized, while commitments worth $152 million were exited by the company.

Our Take

We expect a rise in investment commitments to aid Ares Capital's top-line growth in the quarters ahead. Moreover, backed by a solid liquidity position, the company will continue to enhance its portfolio. However, its failure to control expenses remains a matter of concern. Also, intensifying competition may exert pressure on the company's fundamentals.

Currently, Ares Capital carries a Zacks Rank #3 (Hold).

Among other companies in the same space, FS Investment Corporation FSIC , Fifth Street Asset Management Inc. FSAM and PennantPark Investment Corp. PNNT will report Sep-end quarter results on Nov 9, Nov 10 and Nov 16, respectively.

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ARES CAP CP (ARCC): Free Stock Analysis Report

PENNANTPARK INV (PNNT): Free Stock Analysis Report

FS INVESTMENT (FSIC): Free Stock Analysis Report

FIFTH STREET AM (FSAM): Free Stock Analysis Report

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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.


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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