National Securities reiterated their buy rating on shares of Ares Capital (NASDAQ:ARCC) in a research note issued to investors on Monday. They currently have a $19.00 price objective on the investment management company’s stock.
“ For 2Q18 ARCC posted core NII/share of $0.42, a penny ahead of our estimate and two north of consensus. The company increased its quarterly dividend to $0.39/share from $0.38/share and we expect that the dividend will be bumped up by another penny in 3Q19.
Although we expect core NII to be comfortably ahead of the new dividend level we note that Ares recognizes fee income up-front and thus needs a meaningful buffer between core NII and the dividend in the event originations slow and capital structuring fees decline significantly.
Ares has multiple tailwinds for effective yield increases and thus NIM improvement. Firstly, we expect the company to continue to rotate out of ACAS assets and into higher-yielding ARCC direct originations. At 6/30/18, the company had $1.47 billion of ACAS assets remaining with a weighted average yield of 7.26% compared with $1.56 billion and a weighted average yield of 7.69% the quarter prior.
Secondly, we also expect the company to prioritize capital allocation to its SDLP (senior direct lending program). The SDLP had a yield by cost of 15.0% in 2Q18, unchanged Q/Q and comprised 5.2% of the portfolio at cost at quarter-end. We project the SDLP to be 8.2% of the portfolio at cost in 4Q18 and 14.2% in 4Q19.
ARCC’s NAV/share increased to $17.06 from $16.84 Q/Q on the back of more realized and unrealized gains largely pertaining to ACAS assets. We expect Ares to post double-digit economic returns for both 2018 and 2019 as a result of the steady NAV/share increases we expect to continue.
We are revising our 2018 core NII/share estimate to $1.64 from $1.65 and our 2019 core NII/share estimate to $1.74 from $1.77 and maintaining our BUY rating and $19 price target.,” the firm’s analyst wrote.
ARCC has been the subject of a number of other reports. ValuEngine lowered Ares Capital from a buy rating to a hold rating in a research report on Wednesday, May 2nd. BidaskClub lowered Ares Capital from a hold rating to a sell rating in a research report on Friday, July 27th. Zacks Investment Research lowered Ares Capital from a buy rating to a hold rating in a research report on Thursday, May 3rd. JPMorgan Chase & Co. boosted their target price on Ares Capital from $16.50 to $17.00 and gave the company an overweight rating in a research report on Wednesday, April 11th. Finally, JMP Securities boosted their target price on Ares Capital from $18.00 to $18.50 and gave the company a market outperform rating in a research report on Monday, June 4th. Four equities research analysts have rated the stock with a hold rating and ten have given a buy rating to the company’s stock. Ares Capital has a consensus rating of Buy and an average price target of $17.96.
Shares of Ares Capital opened at $17.35 on Monday, Marketbeat reports. Ares Capital has a one year low of $15.03 and a one year high of $17.47. The stock has a market capitalization of $7.42 billion, a P/E ratio of 12.48, a PEG ratio of 3.66 and a beta of 0.63. The company has a debt-to-equity ratio of 0.62, a current ratio of 1.35 and a quick ratio of 1.35.
Ares Capital (NASDAQ:ARCC) last issued its earnings results on Wednesday, August 1st. The investment management company reported $0.39 EPS for the quarter, meeting analysts’ consensus estimates of $0.39. Ares Capital had a return on equity of 8.98% and a net margin of 69.31%. The business had revenue of $333.00 million during the quarter, compared to analyst estimates of $322.06 million. During the same period in the previous year, the company posted $0.42 EPS. analysts expect that Ares Capital will post 1.58 EPS for the current fiscal year.
The business also recently disclosed a quarterly dividend, which will be paid on Friday, September 28th. Shareholders of record on Friday, September 14th will be issued a dividend of $0.39 per share. This is a positive change from Ares Capital’s previous quarterly dividend of $0.38. This represents a $1.56 dividend on an annualized basis and a yield of 8.99%. The ex-dividend date is Thursday, September 13th. Ares Capital’s payout ratio is currently 109.35%.
A number of institutional investors and hedge funds have recently modified their holdings of ARCC. Envestnet Asset Management Inc. increased its holdings in Ares Capital by 20.1% during the 4th quarter. Envestnet Asset Management Inc. now owns 24,752 shares of the investment management company’s stock worth $389,000 after purchasing an additional 4,144 shares in the last quarter. Algebris UK Ltd bought a new stake in Ares Capital during the 1st quarter worth approximately $5,126,000. Fort Washington Investment Advisors Inc. OH increased its holdings in Ares Capital by 11.5% during the 1st quarter. Fort Washington Investment Advisors Inc. OH now owns 174,324 shares of the investment management company’s stock worth $2,767,000 after purchasing an additional 18,043 shares in the last quarter. Wasatch Advisors Inc. increased its holdings in Ares Capital by 13.0% during the 1st quarter. Wasatch Advisors Inc. now owns 76,389 shares of the investment management company’s stock worth $1,212,000 after purchasing an additional 8,783 shares in the last quarter. Finally, FDx Advisors Inc. increased its holdings in Ares Capital by 94.6% during the 1st quarter. FDx Advisors Inc. now owns 21,557 shares of the investment management company’s stock worth $342,000 after purchasing an additional 10,482 shares in the last quarter. 41.38% of the stock is owned by hedge funds and other institutional investors.
About Ares Capital
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.
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