It has been about a month since the last earnings report for Ares Capital (ARCC). Shares have lost about 1.8% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ares Capital due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Ares Capital Q4 Earnings Miss as Expenses Increase Y/Y

Ares Capital’s fourth-quarter 2024 core earnings of 55 cents per share missed the Zacks Consensus Estimate of 58 cents. The bottom line reflects a decline of 12.7% from the prior-year quarter.

The results were primarily affected by an increase in expenses. Nonetheless, an improvement in the total investment income and the company’s robust portfolio activities supported the results to some extent.

GAAP net income was $357 million or 55 cents per share, down from $413 million or 72 cents per share in the prior-year quarter.

For 2024, core earnings of $2.33 per share missed the Zacks Consensus Estimate of $2.36. The bottom line declined 1.7% from 2023. GAAP net income was $1.52 billion, stable compared to the previous year.

Total Investment Income Improves, Expenses Rise

Total investment income was $759 million, up 7.4% year over year. The rise was largely driven by an increase in interest income from investments, capital structuring service fees and dividend income. The top line, however, lagged the Zacks Consensus Estimate of $785 million.

Full-year total investment income was $2.99 billion, up 14.4% year over year. The top line lagged the Zacks Consensus Estimate of $3.02 billion.

Total quarterly expenses were $387 million, up 9.6% year over year. The increase was due to a rise in all the components except capital gains incentive fee charges and administrative fees.

Robust Portfolio Activities

In the fourth quarter, the company made gross commitments worth $3.75 billion to new and existing portfolio companies. This compares with $2.38 billion of gross commitments in the prior-year quarter.

Further, the company exited $2.72 billion of commitments compared with $1.43 billion a year ago.

The fair value of Ares Capital’s portfolio investments was $26.7 billion as of Dec. 31, 2024.

The fair value of accruing debt and other income-producing securities was $23.6 billion.

Balance Sheet Strong

As of Dec. 31, 2024, the company’s cash and cash equivalents totaled $635 million, up from $535 million as of Dec. 31, 2023.

Ares Capital had $5.1 billion available for additional borrowings under the existing credit facilities as of Dec. 31, 2024. Total outstanding debt was $13.8 billion.

As of Dec. 31, 2024, total assets were $28.3 billion and stockholders’ equity was $13.4 billion.

Net asset value was $19.89 per share, up from $19.24 as of Dec. 31, 2023.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Ares Capital has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ares Capital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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This article originally published on Zacks Investment Research (zacks.com).

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