Shares of Ares Capital Corporation (NASDAQ:ARCC) rallied 2.6% following the release of its second-quarter 2019 results. Core earnings of 49 cents per share surpassed the Zacks Consensus Estimate of 44 cents. Also, the bottom line increased 25.6% from the year-ago quarter.
Results reflected improved total investment income and solid portfolio activity. However, rise is expenses was on the downside. Also, Ares Capital exited the reported quarter with higher debt level.
GAAP net income was $200 million or 47 cents per share, down from $254 million or 60 cents per share in the prior-year quarter.
Total Investment Income & Expenses Rise
Total investment income amounted to $382 million, up 14.7% year over year. The rise was driven by an increase in all income components except other income. Also, the figure beat the Zacks Consensus Estimate of $362.5 million.
Total expenses increased 2.9% year over year to $178 million. Increase in interest and credit facility fees, base management fees, income-based fees, and other general and administrative costs was partially offset by lower administrative fees and capital loss incentive fees.
Net investment income jumped 28.4% year over year to $208 million.
Strong Balance Sheet
As of Jun 30, 2019, the company’s cash and cash equivalents totaled $572 million, up from $296 million as of Dec 31, 2018. Total outstanding debt was $6 billion, up from $5.2 billion.
As of Jun 30, 2019, Ares Capital’s total assets amounted to $13.85 billion and stockholders’ equity was $7.37 billion.
Further, net asset value was $17.27 per share, up from $17.12 at the end of December.
Portfolio Activities
New gross commitments worth $1.31 billion were made during the quarter, down from $1.62 billion recorded in the prior-year quarter. The company exited $1.35 billion of commitments in the quarter compared with $2.22 billion a year ago.
Our Take
Ares Capital’s investment income growth is expected to continue, driven by the rise in demand for customized financing and improving economy. However, elevated expenses (primarily due to expansion plans) may hurt the bottom line. Also, presence of high debt levels remains a major concern.
Currently, Ares Capital carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Release Dates of Other Finance Stocks
Hercules Capital, Inc. (NYSE:HTGC) , Capitala Finance Corp. (NASDAQ:CPTA) and FS KKR Capital Corp. (NYSE:FSK) are scheduled to announce results on Aug 1, Aug 5 and Aug 7, respectively.
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Capitala Finance Corp. (CPTA): Free Stock Analysis Report
Ares Capital Corporation (ARCC): Free Stock Analysis Report
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