There was plenty of news about Ares Capital (NASDAQ: ARCC) on Wednesday, but investors didn’t generally consider it to be good. Following the release of the company’s latest set of earnings and an announcement regarding a leadership transition, the market largely shunned the stock. It closed 3% lower in price on a day when the S&P 500 index inched into the black with a 0.4% increase.
A pair of misses in the fourth quarter
Ares, a prominent business development company (BDC), reported its fourth-quarter and full-year 2024 results. Its total investment income — read “revenue” — was $759 million, versus the $707 million it reaped in the same period of 2023. What’s essentially net income fell during the quarter, however, declining to $357 million ($0.55 per share) from the year-ago tally of $413 million.
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Collectively, prognosticators following Ares stock were anticipating the company would earn more than $785 million in revenue and post a bottom-line profit of $0.58 per share.
In the earnings release, Ares described 2024 as being a successful year for its operations thanks to “stable credit performance and a record year of investing,” said CEO Kipp deVeer. He added that in 2025 the company should benefit from “an increasingly active investing market for acquisition finance and growth capital opportunities.”
Leadership change
DeVeer won’t be quoted too often in the future, as Ares announced that he is stepping down from his position. The move is effective April 30, and he will be replaced in the post by current co-president Kort Schnabel. DeVeer will retain his seat on the company’s board of directors, however, and will remain a member of Ares’ investment advisor.
I don’t feel either the company’s quarter or its leadership transition is sufficient reason to be bearish on Ares. BDCs by their nature are fairly volatile with their results, and the bottom-line dip isn’t reassuring but at the same time isn’t cause for heavy concern. I’d agree with deVeer’s statement that the company is sailing into warm economic waters, so perhaps it’s a good time to buy its stock.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
