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Why Ares Capital (ARCC) Stock Is Down Today

Stocks in this article: ARCC

NEW YORK (TheStreet) -- Ares Capital  (ARCC) fell Wednesday after the specialty finance company priced its offering of shares of its common stock.

The company increased its offering to 13.5 million shares from 11.85 million and priced the offering at $16.99 a share. The offering, which the company expects to close on Monday, July 21, includes an option for underwriters to purchase up to an additional 2.025 million shares.

Ares Capital plans to use the net proceeds to repay some outstanding indebtedness. 

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The stock was down 2.3% to $17 at 10 a.m. More than 10.9 million shares had changed hands by that point, compared to the average volume of 2,735,100.

Separately, TheStreet Ratings team rates ARES CAPITAL CORP as a "hold" with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate ARES CAPITAL CORP (ARCC) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 5.1%. Since the same quarter one year prior, revenues rose by 22.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 45.6% when compared to the same quarter one year prior, rising from $80.34 million to $116.99 million.
  • The gross profit margin for ARES CAPITAL CORP is currently very high, coming in at 71.00%. Regardless of ARCC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ARCC's net profit margin of 48.80% significantly outperformed against the industry.
  • In its most recent trading session, ARCC has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Capital Markets industry and the overall market, ARES CAPITAL CORP's return on equity is below that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: ARCC Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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