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Ares Capital (ARCC) Q1 Earnings & Revenue Miss, Stock Up

Ares Capital Corporation ARCC reported a negative earnings surprise of 5.1% in first-quarter 2016 results. Core earnings of 37 cents per share lagged the Zacks Consensus Estimate of 39 cents. However, earnings came in line with the year-ago figure.

 


Shares of the company gained more than 1% despite the earnings miss on the back of strong growth in assets, decrease in non-accruals and a well performing portfolio. However, weakness in net investment income and higher operating expenses were the headwinds.

GAAP net income totaled $131.5 million or 42 cents per share, up from $100.6 million or 32 cents in the prior-year quarter.

Performance Details

Ares Capital’s total investment income amounted to $248.1 million, down 2% year over year. The fall was mainly due to a reduction in all income components except interest income from investments. Moreover, the figure missed the Zacks Consensus Estimate of $256.6 million.

Total operating expenses rose 2% year over year to $130.1 million. The increase was primarily triggered by higher base management fees, capital gains incentive fees as well as other general and administrative costs. These were, however, partly offset by a decline in interest and credit facility fees.

Net investment income declined 7% year over year to $112.7 million.

As of Mar 31, 2016, the company’s cash and cash equivalents totaled $77.2 million, down from $257.1 million as of Dec 31, 2015. Total outstanding debt was $4.0 billion, down from $4.1 billion as of Dec 31, 2015. Further, the company has $0.9 billion available for additional borrowing as per its present credit facility.

As of Mar 31, 2016, Ares Capital’s total assets amounted to $9.4 billion, up 5% year over year. However, stockholders’ equity was down 1% year over year to $5.2 billion as of Mar 31, 2016.

Further, net asset value was $16.50 per share, down from $16.71 per share as of Mar 31, 2015.

Notably, loans on non-accrual status represented 1.3% of total investment at an amortized cost for the reported quarter.

Portfolio Activities

New commitments worth $470.6 million were made during the reported quarter, down from $500.2 million recorded in the prior-year quarter. Ares Capital exited $484.3 million of commitments in the quarter compared with $1,123.3 million in the year-ago quarter.

Further, between Apr 1 and Apr 27, additional new investment commitments of $123 million were realized, while commitments worth $335 million were exited by the company.

Capital Deployment Activities

During the first quarter, Ares Capital repurchased 393,056 shares for $5.5 million.

Concurrently, the company announced a second-quarter dividend of 38 cents per share, which will be paid on Jun 30 to stockholders of record as of Jun 15.

Our Take

While strong net investment inflows, solid core results and a relatively small decline in NAV per share relative to peers remain the positives for Ares Capital, the company is expected to continue to enhance its portfolio backed by a solid liquidity position. However, intensifying competition may exert pressure on the company’s fundamentals.

Currently, Ares Capital holds a Zacks Rank #2 (Buy).

Among other companies in the same space, FS Investment Corporation FSIC and Garrison Capital Inc. GARS are both scheduled to report their March-end quarter results on May 9, while Fifth Street Asset Management Inc. FSAM is slated to report on Mar 16.

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ARES CAP CP (ARCC): Free Stock Analysis Report
 
GARRISON CAPITL (GARS): Free Stock Analysis Report
 
FS INVESTMENT (FSIC): Free Stock Analysis Report
 
FIFTH STREET AM (FSAM): Free Stock Analysis Report
 
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