Ares Capital’s NAV, Valuation, And Dividend Versus 14 BDC Peers – Part 1 (Post Q4 2023 Earnings) By Scott Kennedy
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I posted a subscriber-exclusive article with links to our Google Sheets. You can always access our positions there. Scott’s positions are updated each week. CWMF’s positions are usually updated on the same day as the trade.
Summary
Part 1 of this article compares ARCC’s recent quarterly change in NAV, quarterly and trailing 12-month economic return, NII, and current valuation to 14 BDC peers.
Part 1 also performs a comparative analysis between each company’s investment portfolio as of 9/30/2023 and 12/31/2023. This includes an updated percentage of investments on non-accrual status.
I also provide a list of the other BDC stocks I currently believe are undervalued (a buy recommendation), overvalued (a sell recommendation), and appropriately valued (a hold recommendation).
Other metrics analyzed include each company’s cumulative realized gain (loss) per share, NII per share, price to annualized NII ratio, and percentage of income attributable to capitalized PIK income.
By providing these comparable sector metrics, this article sheds light on some useful quantitative data when assessing each company’s past, current, and likely future performance.
Author’s Note: This is an “early look” for the REIT Forum subscribers regarding my quarterly business development company (“BDC”) sector comparison article. PART 1 of this article covers BDC net asset value (“NAV”) fluctuations (and various other metrics), PART 2 covers dividend metrics, and both parts cover projected current valuations and recommendations. While I will be providing this article to the public in the near future, this “version” of the article per se will provide each BDC’s BUY, SELL, or HOLD percentage recommendation range. This also includes 6 separately-ranked tables for more effective sector comparative metrics. In the future, subscribers will get additional early looks regarding mortgage real estate investment trust (mREIT) and BDC articles I provide to the public, along with additional data/metrics and per share price ranges. Furthermore, this includes same day/near future mREIT and BDC earnings “notes”/articles and weekly recommendation change articles that are only provided to subscribers of the REIT Forum.
Focus of Article:
The focus of PART 1 of this article is to analyze Ares Capital Corp.’s ARCC 0.00%↑ recent results and compare a handful of the company’s metrics to 14 BDC peers. This analysis will show past and current data with supporting documentation within two detailed tables. Table 1 will compare ARCC’s recent NAV, economic return (loss), net investment income (“NII”), stock price to annualized NII ratio, and percentage of total investment income attributable to capitalized payment-in-kind (“PIK”)/deferred income to the 14 BDC peers. Table 1 will also provide a premium (discount) to estimated CURRENT NAV analysis using stock prices as of 3/8/2024. Table 2 will compare ARCC’s investment portfolio (including several additional metrics) as of 9/30/2023 and 12/31/2023 to the 14 BDC peers.
I am writing this two-part article due to the continued requests that such an analysis be specifically performed on ARCC and some of the company’s BDC peers at periodic intervals. These BDC peers include Capital Southwest Corp. CSWC 0.00%↑ , FS KKR Capital Corp. FSK 0.00%↑ , Gladstone Investment Corp. GAIN 0.00%↑ , Golub Capital BDC Inc. GBDC 0.00%↑ , Main Street Capital Corp. MAIN 0.00%↑ , MidCap Financial Investment Corp. MFIC 0.00%↑ (formerly Apollo Investment Corp.; AINV), Oaktree Specialty Lending Corp. OCSL 0.00%↑ , Blue Owl Capital Corp. OBDC 0.00%↑ (formerly Owl Rock Capital Corp.; ORCC), PennantPark Floating Rate Capital Ltd. PFLT 0.00%↑ , Prospect Capital Corp. PSEC 0.00%↑ , SLR Investment Corp. SLRC 0.00%↑ , Blackrock BLK 0.00%↑ TCP Capital Corp. TCPC 0.00%↑ , TriplePoint Venture Growth BDC Corp. TPVG 0.00%↑ , and Sixth Street Specialty Lending Corp. TSLX 0.00%↑ .
Understanding the characteristics of a company’s investment portfolio and operating performance can shed some light on which companies are overvalued or undervalued strictly per a “numbers” analysis. This is not the only data that should be examined to initiate a position within a particular stock/sector. However, I believe this analysis would be a good “starting-point” to begin a discussion on the topic. My BUY, SELL, or HOLD recommendation and current price target for ARCC will be in the “Conclusions Drawn” section of the article. This includes providing a list of the BDC stocks I currently believe are undervalued (a buy recommendation), overvalued (a sell recommendation), or appropriately valued (a hold recommendation).