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Ares Capital Stock: Stable on Improving Yields and Capital Structure

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Ares Capital Stock: Stable on Improving Yields and Capital Structure PART 1 OF 7

Ares Capital Stock Is Steady despite Difficult Market Conditions

Stock misses analysts’ estimate

As of June 2015, Ares Capital (ARCC) stock has declined by ~5% over the last year. The company’s market capitalization has fallen to $5.16 billion. Its net asset value stood at $5.3 billion—or $16.71 per share—as of March 31, 2015. It’s up by 1.8% compared to the year before.

Ares Capital reported its 1Q15 earnings for the quarter ending on March 31, 2015. The company missed analysts’ estimates by $0.02 and reported EPS (earnings per share) of $0.37.

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Its 1Q15 earnings declined mainly due to lower origination levels and unrealized losses totaling $21 million. This decline was partially offset by higher investment income.

Specialty finance company

Ares Capital is a specialty finance company. It operates closed-end, non-diversified investment management businesses. The company acts as a closed-end fund. It’s regulated as a business development company. Its objective is to generate both current income and capital appreciation through debt and equity investments. It invests primarily in the US middle-market companies.

The company primarily focuses on following areas:

  • corporate, non-syndicated senior debt, mezzanine debt, and non-control equity to middle-market companies
  • project finance – high-yield senior and mezzanine debt to finance power generation projects
  • venture finance – senior secured loans to early-stage and emerging growth companies backed by venture capital firms

Ares Capital invests in sectors like education, energy, restaurants, healthcare services, business services, food services, and financial services—among others.

Other investment management players

Here’s how some of Ares Capital’s peers in investment management fared with their respective quarterly earnings:

  • Prospect Capital (PSEC) missed the estimate by 7%
  • BlackRock Capital Investment (BKCC) beat estimates by 30%
  • Blackstone (BX) beat estimates by 32%

Together, these companies form 4.76% of the PowerShares Global Listed Private Equity Portfolio (PSP).

Here are the two major questions we’ll be investigating in this series:

  • Can Ares Capital get higher originations in the upcoming quarters?
  • Does the firm’s current valuation make it an attractive investment option?
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