Ares Capital (ARCC) AI Stock Analysis

• Market Cap: $14.99B
• Dividend Yield: 8.89%
• Average Volume (3M): 4.36M
• Price to Earnings (P/E): 10.6
• Beta (1Y): 0.53
• Revenue Growth: 14.14%
• EPS Growth: -31.30%
• Country: US
• Employees: 1,200
• Sector: Financial
• Sector Strength: 82
• Industry: Asset Management
• EPS (TTM): 0.50
• Shares Outstanding: 694,181,760
• 10 Day Avg. Volume: 3,829,959
• 30 Day Avg. Volume: 4,358,161
• PEG Ratio: -0.59
• Price to Book (P/B): 1.02
• Price to Sales (P/S): 0.00
• P/FCF Ratio: -5.88
• Enterprise Value/Market Cap: N/A
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: N/A
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $22.13
• Price Target Upside: 0.73% Upside
• Rating Consensus: Strong Buy
• Number of Analyst Covering: 8

• Rating: 74 Outperform
• Price Target: ―

Ares Capital exhibits strong financial stability and an attractive valuation, supported by a consistent dividend strategy. However, challenges with revenue growth, cash flow stability, and market momentum temper the outlook. The positive leadership transition and robust earnings guidance add confidence, but potential risks in the loan market warrant cautious optimism.

Positive Factors

Investment Potential

Ares Capital is considered one of the best positioned BDCs to gain share and generate solid risk-adjusted returns in the current economic backdrop.

Portfolio Growth

The portfolio of Ares Capital increased by 1.5% to $27 billion, showing growth in net commitments.

Profitability

Profitability was solid with a core return on equity of 11%, and the net asset value per share reached a record $19.89.

Negative Factors

Core Earnings

ARCC showed an 8% sequential decline in Core EPS per share with 71% conversion to GAAP earnings.

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 Business Overview & Revenue Model

Company Description

Ares Capital Corporation is a business development company specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. It prefers to make investments in companies engaged in the basic and growth manufacturing, business services, consumer products, health care products and services, and information technology service sectors. The fund will also consider investments in industries such as restaurants, retail, oil and gas, and technology sectors. It focuses on investments in Northeast, Mid-Atlantic, Southeast and Southwest regions from its New York office, the Midwest region, from the Chicago office, and the Western region from the Los Angeles office. The fund typically invests between $20 million and $200 million and a maximum of $400 million in companies with an EBITDA between $10 million and $250 million. It makes debt investments between $10 million and $100 million The fund invests through revolvers, first lien loans, warrants, unitranche structures, second lien loans, mezzanine debt, private high yield, junior capital, subordinated debt, and non-control preferred and common equity. The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically considers the purchase of stressed and discounted debt positions. The fund prefers to be an agent and/or lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.

How the Company Makes Money

Ares 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.

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.

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.

Breakdown
TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement		Total Revenue
2.13B	1.71B	2.61B	741.00M	1.68B	541.00M
	Gross Profit
2.04B	940.00M	1.73B	274.00M	1.02B	185.00M
	EBIT
1.94B	1.59B	1.87B	1.11B	1.60B	503.00M
	EBITDA
1.83B	2.32B	2.12B	1.16B	1.60B	823.00M
	Net Income Common Stockholders
1.44B	1.52B	1.52B	600.00M	1.57B	484.00M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
647.00M	635.00M	535.00M	303.00M	372.00M	254.00M
	Total Assets
28.32B	28.25B	23.80B	22.40B	20.84B	16.20B
	Total Debt
0.00	0.00	11.94B	12.32B	11.14B	8.55B
	Net Debt
-647.00M	-635.00M	-535.00M	12.02B	10.77B	8.30B
	Total Liabilities
14.64B	14.90B	12.60B	12.84B	11.97B	9.02B
	Stockholders Equity
13.67B	13.36B	11.20B	9.55B	8.87B	7.18B
Cash Flow		Free Cash Flow
-2.41B	-2.13B	511.00M	-1.36B	-2.46B	-557.00M
	Operating Cash Flow
-774.00M	-2.13B	511.00M	-1.36B	-2.46B	-557.00M
	Investing Cash Flow
-1.34B	0.00	0.00	-2.10B	-3.39B	-1.29B
	Financing Cash Flow
2.57B	2.42B	-284.00M	1.21B	2.62B	707.00M

Ares Capital Technical Analysis

• Technical Analysis Sentiment: Positive
• Last Price: 21.97
• 50DMA: Positive
• 100DMA: Positive
• 200DMA: Positive
• MACD: Negative
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For ARCC, the sentiment is Positive. The current price of 21.97 is above the 20-day moving average (MA) of 21.28, above the 50-day MA of 21.15, and above the 200-day MA of 21.00, indicating a bullish trend. The MACD of 0.24 indicates Negative momentum. The RSI at 60.24 is Neutral, neither overbought nor oversold. The STOCH value of 51.70 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for ARCC.

Ares Capital Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
ARCC	74 Outperform	$14.99B	10.56	10.29%	8.89%	14.14%	-31.30%
TSLX	74 Outperform	$2.12B	11.97	11.06%	8.14%	5.00%	-24.20%
MAIN	74 Outperform	$4.94B	9.43	19.31%	5.31%	51.80%	12.05%
GBDC	71 Outperform	$3.98B	13.30	8.88%	11.10%	16.10%	-24.30%
HTGC	70 Outperform	$3.05B	13.07	11.30%	9.20%	-7.29%	-38.60%
Sector *	64 Neutral	$12.67B	9.74	7.58%	17015.08%	12.21%	-6.96%
FSK	58 Neutral	$5.86B	11.02	7.97%	13.38%	-16.13%	-15.88%

Ares Capital Corporate Events

Ares Capital Announces New Equity Distribution Agreements

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.

Ares Capital Announces New CEO Appointment

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.