Ares Capital (ARCC) Stock Down on Q1 Earnings Miss, Costs Dip

Shares of Ares Capital Corporation ARCC lost 8.8% following the release of its first-quarter 2022 results. Net investment income of 41 cents per share missed the Zacks Consensus Estimate of 47 cents. The bottom line, however, reflected a rise of 24.2% from the prior-year quarter.

The company recorded an increase in total investment income. The portfolio activity also remained solid in the quarter. A decline in expenses was another tailwind.

GAAP net income was $211 million or 44 cents per share compared with $373 million or 87 cents per share recorded in the prior-year quarter.

Total Investment Income Increases, Expenses Decline

Total investment income was $440 million, up 12.8% year over year. The rise was driven by an increase in dividend income, interest income from investments and other income. The top line missed the Zacks Consensus Estimate of $488.7 million.

Total expenses were $229 million, down 5% year over year.

Portfolio Activities Solid

Gross commitments worth $2 billion were made in the first quarter to new and existing portfolio companies. This compares with $1.8 billion worth of gross commitments in the prior-year quarter.

In the reported quarter, the company exited $2.6 billion of commitments compared with $2.1 billion a year ago.

The fair value of Ares Capital’s portfolio investments was $19.5 billion as of Mar 31, 2022. The fair value of accruing debt and other income-producing securities was $17.7 billion.

Balance Sheet Strong

As of Mar 31, 2022, the company’s cash and cash equivalents totaled $695 million, up from $372 million as of Dec 31, 2021.

Ares Capital had $5.3 billion available for additional borrowings under the existing credit facilities as of Mar 31, 2022. Total outstanding debt was $10.5 billion.

As of Mar 31, 2022, total assets were $20.5 billion and stockholders’ equity was $9.4 billion.

Net asset value was $19.03 per share, up from $18.96 as of Dec 31, 2021.

Our Take

An increase in the demand for customized financing is expected to continue supporting Ares Capital. However, elevated expense levels will likely 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.

Earnings Release Dates of Other Finance Stocks

Hercules Capital, Inc. HTGC is scheduled to announce quarterly numbers on May 5.

Over the past 30 days, the Zacks Consensus Estimate for Hercules Capital’s first-quarter earnings has been unchanged at 31 cents. The estimate indicates a rise of 6.9% from the prior-year quarter reported number.

FS KKR Capital Corp. FSK is slated to announce quarterly numbers on May 9.

Over the past 30 days, the Zacks Consensus Estimate for FS KKR Capital’s quarterly earnings has been unchanged at 64 cents, implying a 1.6% rise from the prior-year reported number.

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