GAINL - Ares Capital's NAV Valuation And Dividend Versus 14 BDC Peers - Part 1 (Includes Recommendations As Of 3/8/2024)

2024-03-13 07:10:18 ET

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.
• Currently, the 15 covered BDC peers have a range of valuations (7 overvalued, 7 appropriately valued, 1 undervalued). I believe ARCC is currently appropriately valued (close to undervalued).

Focus of Article:

The focus of PART 1 of this article is to analyze Ares Capital Corp.’s ( ARCC ) recent results and compare a handful of the company’s metrics to 14 business development company (“BDC”) peers. This analysis will show past and current data with supporting documentation within two detailed tables. Table 1 will compare ARCC’s recent net asset value (“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 ( CSWC ), FS KKR Capital Corp ( FSK ), Gladstone Investment ( GAIN ), Golub Capital BDC ( GBDC ), Main Street Capital ( MAIN ), MidCap Financial Investment Corp. ( MFIC ) (formerly Apollo Investment Corp.; AINV), Oaktree Specialty Lending Corp. ( OCSL ), Blue Owl Capital Corp. ( OBDC ) (formerly Owl Rock Capital Corp.; ORCC), PennantPark Floating Rate Capital ( PFLT ), Prospect Capital Corp. ( PSEC ), SLR Investment Corp. ( SLRC ), BlackRock TCP Capital Corp ( TCPC ), TriplePoint Venture Growth BDC Corp. ( TPVG ), and Sixth Street Specialty Lending ( TSLX )....

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