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Ares Capital Corp (ARCC)
NASDAQ:ARCC
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Ares Capital
(NASDAQ:ARCC)
74Outperform
Positive Factors
Credit Quality
Credit quality is robust, with non-accruals down modestly and below the historic average for ARCC.
Financial Performance
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
The portfolio of Ares Capital increased by 1.5% to $27 billion, showing growth in net commitments.
Negative Factors
Earnings
Ares Capital's core EPS was moderately below the BofA/consensus forecast due to lower recurring interest income and lower dividend income.
Non-Accruals
There was a modest increase in non-accruals to 1.7% of the portfolio at cost, compared to 1.3% the prior quarter.
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
$14.25B
Dividend Yield9.29%
Average Volume (3M)6.30M
Price to Earnings (P/E)10.1
Beta (1Y)0.55
Revenue Growth14.14%
EPS Growth-31.30%
CountryUS
Employees1,200
SectorFinancial
Sector Strength87
IndustryAsset Management
Share Statistics
EPS (TTM)2.04
Shares Outstanding689,632,260
10 Day Avg. Volume4,616,256
30 Day Avg. Volume6,295,518
Financial Highlights & Ratios
PEG Ratio0.79
Price to Book (P/B)N/A
Price to Sales (P/S)0.00
Price to Cash Flow (P/CF)0.00
P/FCF Ratio0.00
Enterprise Value/Market Cap1.91
Enterprise Value/RevenueN/A
Enterprise Value/Gross Profit11.18
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
$22.50Price Target Upside10.62% Upside
Rating ConsensusStrong Buy
Number of Analyst Covering10
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 shows strong profitability and stability through a high EBIT margin and robust equity position. However, inconsistent revenue growth and challenges with cash flow stability present potential risks.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
20.34
Price Trends
21.42
Negative
21.69
Negative
20.83
Negative
Market Momentum
-0.19
Negative
44.39
Neutral
54.84
Neutral
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 20.34 is below the 20-day moving average (MA) of 20.36, below the 50-day MA of 21.42, and below the 200-day MA of 20.83, indicating a bearish trend. The MACD of -0.19 indicates Negative momentum. The RSI at 44.39 is Neutral, neither overbought nor oversold. The STOCH value of 54.84 is Neutral, 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 (63)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
75 Outperform | $1.93B | 10.14 | 12.02% | 8.86% | 8.07% | -22.25% | |
74 Outperform | $14.25B | 10.10 | 12.40% | 9.29% | 14.14% | -31.30% | |
74 Outperform | $4.74B | 9.15 | 19.26% | 5.60% | 51.80% | 12.05% | |
71 Outperform | $3.80B | 10.41 | 9.40% | 11.59% | 16.10% | -24.30% | |
65 Neutral | $3.17B | 11.24 | 13.71% | 8.94% | -1.49% | -29.48% | |
63 Neutral | $12.46B | 9.55 | 8.14% | 17103.96% | 12.70% | -4.66% | |
58 Neutral | $5.57B | 9.52 | 8.69% | 14.08% | -16.13% | -15.88% |
* Financial Sector Average
Performance Comparison
ARCC
Ares Capital
20.34
1.59
8.48%
GBDC
Golub Capital Bdc
14.06
-1.23
-8.04%
HTGC
Hercules Capital
17.81
0.30
1.71%
MAIN
Main Street Capital
52.63
6.29
13.57%
TSLX
Sixth Street Specialty Lending
20.56
1.61
8.50%
FSK
FS KKR Capital
19.59
2.97
17.87%
Ares Capital Earnings Call Summary
Earnings Call Date:Apr 29, 2025
(Q1-2025)
| % Change Since: -4.28%|
Next Earnings Date:Jul 29, 2025
Earnings Call Sentiment Neutral
The earnings call reflects a balanced sentiment with strong first-quarter performance, increased investment activity, and a consistent dividend strategy. However, challenges include a decline in core earnings and GAAP net income, issues in the liquid loan market, and potential tariff impacts.Q1-2025 Updates
Positive Updates
Strong First Quarter Performance
Reported solid first-quarter results with $0.50 in core earnings, equating to an annualized return on equity of 10%. Credit quality remains strong with non-accrual loans and lower risk-rated credits at historically low levels.
Increased Investment Activity
Committed $3.5 billion in gross commitments during the first quarter, with a 54% increase in gross commitments versus the same period last year.
Conservative Balance Sheet and Liquidity
Ended the quarter with conservative balance sheet leverage and significant dry powder to make new investments, with nearly $6.8 billion of total available liquidity.
Successful Debt Management
Issued $1 billion of seven-year unsecured notes with a new issued spread of 150 basis points, representing a new low for the company and the BDC sector.
Consistent Dividend Strategy
Declared a $0.48 per share quarterly dividend for the second quarter of 2025, marking the 63rd consecutive quarter of delivering stable or increasing regular quarterly dividends.
Negative Updates
Decline in Core Earnings
Core earnings per share declined to $0.50 from $0.55 in the prior quarter and $0.59 for the same period a year ago, largely driven by a decline in portfolio yields.
Challenges in Liquid Loan Market
New transaction activity in the liquid loan market dropped significantly as banks became more cautious, leading to increased volatility and widening spreads.
Potential Tariff Impacts
Monitoring potential impacts from higher tariffs, with borrowers exposed to tariffs comprising a mid-single-digit share of the portfolio.
Decreased GAAP Net Income
Reported GAAP net income per share of $0.36 for the first quarter of 2025 compared to $0.55 in the prior quarter and $0.76 in the first quarter of 2024.
Company Guidance
In the recent earnings call, Ares Capital Corporation provided guidance on several key financial metrics for the first quarter of 2025. The company reported core earnings per share (EPS) of $0.50, translating to an annualized return on equity of 10%. Gross commitments for the quarter were $3.5 billion, marking a 54% increase compared to the same period last year, excluding commitments fronted and sold as agents. The company maintained a conservative balance sheet with a net debt to equity ratio below one, and significant liquidity totaling nearly $6.8 billion. Ares declared a $0.48 per share dividend for the second quarter, continuing a 63-quarter streak of stable or increasing dividends. The company also noted a reduction in non-accrual loans, with a cost percentage of 1.5% and a fair value percentage of 0.9%, both below historical averages. Additionally, portfolio companies demonstrated robust performance, with a 12% weighted average last twelve months (LTM) EBITDA growth and leverage levels below the five-year average.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.