Ares Capital Corporation’s ARCC first-quarter 2026 core earnings of 47 cents per share missed the Zacks Consensus Estimate by a penny. The bottom line fell 6% from the prior-year quarter.
The reported quarter’s results were primarily hurt by lower transaction volumes and reduced capital structuring service fees, resulting from capital markets volatility, geopolitical uncertainty and retail outflows. However, higher interest income from investments, marginally lower expenses and robust portfolio activities provided support. Probably because of these, shares of the company gained 1.7% following the release, despite decline in earnings.
GAAP net income was $92 million or 13 cents per share, plummeting from $241 million or 36 cents per share in the prior-year quarter. The decline was largely led by net unrealized losses due to spread widening in private credit markets.
ARCC’s Total Investment Income Improves, Expenses Fall Marginally
Total investment income was $763 million, up 4.2% year over year. This was driven by higher interest income from investments, dividend income and other income, partly offset by lower capital structuring service fees. The top line lagged the Zacks Consensus Estimate of $769 million.
Total expenses were $359 million, down marginally from the prior-year quarter.
ARCC’s Portfolio Activities Robust
In the first quarter, the company made gross commitments worth $3.25 billion to new and existing portfolio companies, down from $3.45 billion in the prior-year quarter.
The company exited $3.18 billion of investment commitments in the reported quarter compared with $2.86 billion a year ago.
The fair value of Ares Capital’s portfolio investments was $29.5 billion as of March 31, 2026, almost stable compared with the Dec. 31, 2025, value. Despite the concerns surrounding artificial intelligence (AI), the company’s portfolio values were not materially impacted in the quarter because an independent AI risk assessment by a global consulting firm found that almost 85% of ARCC’s software portfolio is low-risk due to system-of-record positioning and high switching costs.
The fair value of accruing debt and other income-producing securities was $26.5 billion as of March 31, 2026.
Ares Capital’s Balance Sheet Strong
As of March 31, 2026, the company’s cash and cash equivalents totaled $505 million, down from $638 million as of Dec. 31, 2025.
Ares Capital had $5.5 billion available for additional borrowings under the existing credit facilities as of March 31, 2026. Total outstanding debt was $15.9 billion.
As of March 31, 2026, total assets were $30.7 billion and stockholders’ equity was $14.1 billion.
Net asset value was $19.59 per share, down from $19.94 as of Dec. 31, 2025.
Our Take on ARCC
Driven by the rise in the demand for customized financing, growth in total investment income is expected to continue in the near term. However, the company’s expansion strategies may lead to a rise in costs in the near term. Regulatory constraints pose another major headwind.
Ares Capital Corporation Price, Consensus and EPS Surprise
Ares Capital Corporation price-consensus-eps-surprise-chart | Ares Capital Corporation Quote
Currently, ARCC carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Dates & Expectations for ARCC’s Peers
Hercules Capital, Inc. HTGC is slated to report first-quarter 2026 numbers on May 5.
Over the past seven days, the Zacks Consensus Estimate for Hercules Capital’s quarterly earnings has been unchanged at 47 cents.
Main Street Capital MAIN is scheduled to announce quarterly results on May 7.
Over the past seven days, the Zacks Consensus Estimate for Main Street Capital’s quarterly earnings has been unchanged at $1.04.
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This article originally published on Zacks Investment Research (zacks.com).