Ares Capital Corporation ARCC gained nearly 1.6% following the fourth-quarter and full-year 2014 earnings release before the opening bell on Feb 26. Core earnings for the quarter came in at 42 cents per share, beating the Zacks Consensus Estimate by 7.7%. Moreover, the bottom line compared favorably with the prior-year quarter figure of 41 cents.
For 2014, core earnings were $1.55 per share, surpassing the Zacks Consensus Estimate of $1.52 per share. However, the figure fell 7.1% from $1.66 recorded in 2013.
Better-than-expected results were driven by higher total investment income, which was, however, partially offset by elevated expenses. A rise in new investment commitments and a steady balance sheet position were the other positives in the quarter.
GAAP net income for the fourth quarter totaled $153.4 million, up 14.6% from the prior-year quarter. Moreover, for 2014, GAAP net income came in at $591.4 million, rising 21.1% year over year.
For 2014, total investment income was $989 million, up 12.2% from $881.7 million in 2013; while net investment income inched up 1.7% year over year to $437.8 million.
Quarter in Detail
Ares Capital’s total investment income for the fourth quarter came in at $270.9 million, beating the Zacks Consensus Estimate of $260 million. Moreover, the figure was up 15.9% year over year. All the components collectively contributed to the rise.
Total operating expenses rose 17% year over year to $140.2 million. This was due to a rise in all elements of expense.
A rise in investment income more than offset the rise in expenses, resulting in a net investment income of $128.2 million. Also, the figure increased 15% year over year.
As of Dec 31, 2014, cash and cash equivalents amounted to $194.6 million. Total debt outstanding was $3.9 billion. Further, the company has $1.6 billion available for additional borrowing as per its present credit facility.
Notably, loans on non-accrual status represented 2.2% of total investment at amortized cost for the quarter.
Business Transactions
New investment commitments worth $1.4 billion were made during the quarter, up from $1.2 billion in the prior-year quarter. Ares Capital exited $1.3 billion of commitments in the reported quarter. Further, between Jan 1 and Feb 20, additional new investment commitments of $171 million were realized, while the company exited commitments worth $597 million during the same time frame.
As of Dec 31, 2014, Ares Capital’s total assets amounted to $9.5 billion compared with $7.6 billion as of Dec 31, 2013. Stockholders’ equity totaled $5.3 billion and net asset value came in at $16.82 per share as of Dec 31, 2014, up 7.7% and 2.2% respectively, from the year-ago quarter.
Our Viewpoint
We remain encouraged by the rise in investment commitments, which will lend support to Ares Capital’s top-line growth in the quarters ahead. Moreover, backed by a strong liquidity position, the company may continue to enhance its portfolio.
However, weak expense management and intense competition in the banking space are anticipated to put pressure on the company’s fundamentals, going forward.
Currently, Ares Capital carries a Zacks Rank #2 (Buy).
Among other players in the same space, American Capital, Ltd. ACAS reported fourth-quarter 2014 net operating income per share of 12 cents, missing the Zacks Consensus Estimate by 5 cents, due to higher expenses.
Some better-ranked finance stocks include MidWest One Financial Group, Inc. MOFG and Investment Technology Group Inc. ITG, both sporting a Zacks Rank #1 (Strong Buy).
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