Ares Capital: Valuation Change Warrants A Downgrade

Rubicon Associates Investing Group Follow Summary Ares Capital Corporation is downgraded to HOLD due to valuation concerns despite strong credit management and sector leadership. Net investment income per share has declined to $0.50, with non-accruals rising to 2.4% of cost, indicating credit drift and earnings compression. ARCC trades at 9.52x NII (61st percentile) and 0.984x NAV (17th percentile), with no valuation cushion left on an earnings basis. I recommend patience; a more attractive entry is around $18.00, where P/NII and P/NAV metrics align with historical value. Looking for more investing ideas like this one? Get them exclusively at iREIT®+HOYA Capital. Learn More » PM Images/DigitalVision via Getty Images Investment Thesis and Recommendation As with most BDCs, Ares Capital Corporation ( ARCC ) is owned for income with the possibility of some capital appreciation. It invests primarily in first lien senior secured loans, 59% of the portfolio This article was written by Rubicon Associates 5.72K Followers Follow Rubicon Associates is headed by a Chartered Financial Analyst charter holder with over 20 years of experience in the investment management industry focused on the analysis, investment and management of fixed income and preferred stock portfolios as well as asset allocation and macro portfolios. Over the years, he has analyzed and invested in both public and private companies around the world as well as advised institutional clients on fixed income strategies, manager selection, and asset allocation. The principal has been responsible for managing nearly seven billion dollars in credit investments across the capital structure and overseeing the research and trading of credit market activities, $20 B in a short-duration fund, and was Chief Strategist at a wealth management firm. Rubicon Associates has written for Seeking Alpha, Learn Bonds, a newsletter and TheStreet.com in addition to advising institutional and private investors. Analyst’s Disclosure: I/we have a beneficial long position in the shares of ARCC, BXSL, GBDC, HTGC, TSLX, MSDL, RWAYI, TRIN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. The content of this article reflects my personal views and is provided for informational and educational purposes only. It does not constitute investment advice, financial advice, or a recommendation to buy or sell any securities or financial instruments. While I strive for accuracy, the information presented may contain errors or omissions or be based on sources believed to be reliable but not independently verified. I make no representations or warranties as to the completeness, accuracy, or timeliness of any information presented. This article is not intended to provide, and should not be relied upon for, investment, legal, tax, or accounting advice. The securities and strategies discussed may not be suitable for all investors. Past performance is not indicative of future results. All investments involve risk, including the potential loss of principal. I may hold, or have held, positions in the securities mentioned. I do not receive compensation for writing this article, nor do I intend to influence the price or trading volume of any security discussed. All opinions are subject to change without notice. This content is written strictly in a personal capacity and does not reflect the views of any employer, organization, or associated entity. Readers are strongly encouraged to conduct their own independent research and to consult with a licensed financial advisor before making any investment. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.