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Ares Capital (ARCC)
:ARCC
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Ares Capital
(NASDAQ:ARCC)
76Outperform
Positive Factors
Net Asset Value
Profitability was solid with a core return on equity of 11%, and the net asset value per share reached a record $19.89.
Portfolio Growth
Ares Capital reported a relatively solid quarter driven by healthy credit and strong portfolio growth.
Negative Factors
Valuation Concerns
The rating on Ares Capital Corporation (ARCC) is downgraded to Market Perform due to valuation concerns, not because of credit or portfolio issues.
Ares Capital (ARCC) vs. S&P 500 (SPY)
Market Cap
$14.50B
Dividend Yield8.96%
Average Volume (3M)4.88M
Price to Earnings (P/E)8.7
Beta (1Y)0.50
Revenue Growth19.95%
EPS Growth-10.57%
CountryUS
Employees3,200
SectorFinancial
Sector Strength82
IndustryAsset Management Services
Share Statistics
EPS (TTM)2.45
Shares Outstanding681,588,440
10 Day Avg. Volume5,561,980
30 Day Avg. Volume4,879,049
Financial Highlights & Ratios
PEG Ratio0.79
Price to Book (P/B)N/A
Price to Sales (P/S)6.48
Price to Cash Flow (P/CF)-13.30
P/FCF Ratio0.00
Enterprise Value/Market CapN/A
Enterprise Value/RevenueN/A
Enterprise Value/Gross ProfitN/A
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
$23.31Price Target Upside9.54% Upside
Rating ConsensusStrong Buy
Number of Analyst Covering8
Ares Capital Business Overview & Revenue Model
Company DescriptionAres Capital Corporation (ARCC) is a leading specialty finance company that primarily operates in the business development company (BDC) sector. ARCC is focused on providing direct lending solutions to middle-market companies across a diverse range of industries. The company offers a variety of financing solutions, including senior secured loans, mezzanine debt, and equity investments, aiming to support the growth and expansion of its clients while generating attractive risk-adjusted returns for its investors.
How the Company Makes MoneyAres Capital Corporation makes money by providing capital to middle-market companies, primarily through direct lending. The company's revenue model involves earning interest and fees from its loan portfolio, where the primary sources of income include interest income from senior secured loans, subordinated debt, and mezzanine financing. Additionally, ARCC may generate income from equity investments through dividends or capital gains upon the sale of equity stakes. The company leverages its expertise in credit underwriting and active portfolio management to optimize returns and minimize credit losses. Significant partnerships with financial institutions and sponsors can also contribute to deal flow and enhance the company's ability to structure and syndicate larger transactions, further augmenting its revenue generation capabilities.
Ares Capital Financial Statement Overview
Summary
Ares Capital demonstrates strong profitability with high EBIT margins and a robust equity position. However, inconsistent revenue growth and cash flow variability are concerns. The company should focus on stabilizing its cash flows and improving revenue growth to enhance financial resilience.Income Statement
Ares Capital has shown strong profitability with a high EBIT margin consistently over the years, peaking at 92.4% in 2023. However, revenue growth has been inconsistent, with a notable decline in 2024. The company maintains solid net profit margins, indicating efficient cost management.82
Very Positive
Balance Sheet
The balance sheet indicates a robust equity position with a high equity ratio of 47.3% in 2024 and no debts recorded, showing financial stability. Return on equity has been strong, though it decreased in 2024 compared to 2023, suggesting a lower return on equity investment.75
Positive
Cash Flow
Cash flow analysis reveals challenges with negative free cash flow in recent years, despite significant positive operating cash flow in 2023. The variability in cash flows indicates potential risks in cash management and operational efficiency.65
Positive
| Breakdown | ||||
| Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|
| Income Statement | Total Revenue | |||
| 2.44B | 2.61B | 741.00M | 1.68B | 541.00M | Gross Profit |
| 2.44B | 1.73B | 274.00M | 1.02B | 185.00M | EBIT |
| 2.39B | 1.87B | 1.11B | 1.60B | 503.00M | EBITDA |
| 0.00 | 2.12B | 1.16B | 1.60B | 823.00M | Net Income Common Stockholders |
| 1.40B | 1.52B | 600.00M | 1.57B | 484.00M |
| Balance Sheet | Cash, Cash Equivalents and Short-Term Investments | |||
| 635.00M | 535.00M | 303.00M | 372.00M | 254.00M | Total Assets |
| 28.25B | 23.80B | 22.40B | 20.84B | 16.20B | Total Debt |
| 0.00 | 11.94B | 12.32B | 11.14B | 8.55B | Net Debt |
| -635.00M | -535.00M | 12.02B | 10.77B | 8.30B | Total Liabilities |
| 14.90B | 12.60B | 12.84B | 11.97B | 9.02B | Stockholders Equity |
| 13.36B | 11.20B | 9.55B | 8.87B | 7.18B |
| Cash Flow | Free Cash Flow | |||
| -2.13B | 511.00M | -1.36B | -2.46B | -557.00M | Operating Cash Flow |
| -2.13B | 511.00M | -1.36B | -2.46B | -557.00M | Investing Cash Flow |
| 0.00 | 0.00 | -2.10B | -3.39B | -1.29B | Financing Cash Flow |
| 2.42B | -284.00M | 1.21B | 2.62B | 707.00M |
Ares Capital Technical Analysis
Negative
21.28
Price Trends
22.33
Negative
21.58
Negative
20.58
Positive
Market Momentum
-0.31
Positive
37.45
Neutral
-8.90
Positive
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For ARCC, the sentiment is Negative. The current price of 21.28 is below the 20-day moving average (MA) of 22.29, below the 50-day MA of 22.33, and above the 200-day MA of 20.58, indicating a neutral trend. The MACD of -0.31 indicates Positive momentum. The RSI at 37.45 is Neutral, neither overbought nor oversold. The STOCH value of -8.90 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for ARCC.
Ares Capital Risk Analysis
Ares Capital disclosed 57 risk factors in its most recent earnings report. Ares Capital reported the most risks in the “Finance & Corporate” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Ares Capital Peers Comparison
Overall Rating
UnderperformOutperform
Sector (64)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
77 Outperform | $4.98B | 9.61 | 19.26% | 5.28% | 51.80% | 12.05% | |
76 Outperform | $14.50B | 8.72 | 12.40% | 8.96% | 19.95% | -10.57% | |
67 Neutral | $3.21B | 11.19 | 13.71% | 8.64% | -1.49% | -29.48% | |
64 Neutral | $485.89M | 6.82 | 14.74% | 7.28% | -8.68% | -3.76% | |
64 Neutral | $14.07B | 10.53 | 9.02% | 4.23% | 17.01% | -7.59% | |
58 Neutral | $687.42M | ― | -8.57% | 16.83% | 8.24% | -207.60% | |
53 Neutral | $455.77M | 27.71 | 3.28% | 13.04% | ― | -66.59% |
* Financial Sector Average
Performance Comparison
ARCC
Ares Capital
21.28
2.97
16.22%
GAIN
Gladstone Investment
13.19
0.79
6.37%
HTGC
Hercules Capital
18.51
2.16
13.21%
MAIN
Main Street Capital
56.26
13.78
32.44%
PNNT
Pennantpark Investment
6.98
1.20
20.76%
TCPC
BlackRock TCP Capital
8.08
-0.87
-9.72%
Ares Capital Earnings Call Summary
Earnings Call Date: Feb 5, 2025 | % Change Since: -8.59% | Next Earnings Date: Apr 29, 2025
Earnings Call Sentiment Positive
The earnings call presented a generally positive outlook with record NAV per share, strong origination performance, and an excellent credit rating position. However, there were challenges with declining core earnings and an increase in non-accrual rates, though these remained below historical averages. The overall sentiment of the call is positive, with significant achievements in terms of market positioning, financial strength, and dividend stability.Highlights
Record NAV Per Share and Strong Credit Performance
The company ended 2024 with a record NAV per share of $19.89, marking the eighth consecutive quarter of NAV growth. The organic weighted average LTM EBITDA growth rate of portfolio companies reached 11% in Q4 2024, indicating strong underlying performance.
Robust Origination and Market Share Growth
In 2024, Ares Capital reviewed over $650 billion in new opportunities and generated record new commitments of $5 billion. More than 70% of new commitments were to existing borrowers, emphasizing strong relationships and market positioning.
Strong Financial Position and Credit Ratings
Ares Capital secured ratings upgrades from two major credit rating agencies, making it the highest-rated BDC among the three major agencies. The leverage ratio was at 0.99 times net debt to equity, providing significant flexibility.
Dividend Stability and Spillover Income
The company declared a first-quarter 2025 dividend of $0.48 per share, consistent with Q4 2024, and has an estimated $922 million in spillover income available for distribution in 2025.
Lowlights
Decline in Core Earnings and Portfolio Yields
Core earnings per share declined to $0.55 in Q4 2024 from $0.63 in Q4 2023, largely due to a decline in portfolio yields as base rates were nearly 100 basis points lower year-over-year.
Increase in Non-Accrual Rates
Non-accruals at cost increased to 1.7% in Q4 2024 from 1.3% in the previous quarter, although still below the company's historical average of 2.8%.
Company Guidance
During the Ares Capital Corporation's fourth-quarter earnings call for the fiscal year ending December 31, 2024, several key metrics and guidance were highlighted. The company reported a GAAP net income per share of $0.55 for Q4 2024, down from $0.62 in the previous quarter, and $2.44 for the year, compared to $2.75 in 2023. Core earnings per share were also noted at $0.55 for the fourth quarter. Ares Capital ended 2024 with a record NAV per share of $19.89, marking the eighth consecutive quarter of NAV growth. The portfolio at fair value increased to $26.7 billion, with $15 billion in new commitments for the year. The company maintained a non-accrual rate of 1.7% at cost, and the weighted average yield on debt and income-producing securities was 11.1% at the end of the year. Additionally, Ares Capital declared a Q1 2025 dividend of $0.48 per share and ended the year with a stockholders' equity of $13.4 billion. The call also mentioned a significant taxable income spillover estimated at $1.37 per share for 2025, providing further dividend visibility and stability.Ares Capital Corporate Events
Private Placements and FinancingRegulatory Filings and Compliance
Ares Capital Announces New Equity Distribution Agreements
Neutral
Feb 5, 2025
On February 5, 2025, Ares Capital Corporation entered into new equity distribution agreements with Truist, Jefferies, Mizuho, RBC, and Regions, enabling the potential sale of up to $1.5 billion in common stock. These agreements, which replace older agreements from July 2024, allow for sales based on market conditions and include standard terms such as commission rates and termination provisions.
Executive/Board Changes
Ares Capital Announces New CEO Appointment
Positive
Feb 5, 2025
On February 5, 2025, Ares Capital Corporation announced the appointment of Kort Schnabel as Chief Executive Officer, effective April 30, 2025. Schnabel, a long-time leader within the company known for his investment acumen and leadership, will succeed R. Kipp deVeer, who will step down but remain a board member and officer. This leadership transition is expected to continue driving Ares Capital’s growth objectives and maintain its position as a market leader in providing flexible capital solutions.
Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.