Compass Point analyst Casey Alexander initiated coverage on Ares Capital Corp. at "buy," saying the company is trading at a discount to historical average price to net asset value, which serves as a "worthwhile" entry point.
The analyst expects the shares to trade at historical average plus a reasonable premium once the "unwarranted" fears of a dividend cut subside. Alexander said the company has multiple levers, including yield enhancement, to achieve dividend coverage. He noted that the company has nearly $2.5 billion in lower-yielding assets which can be redeployed into loans that can earn 200 to 250 basis points higher than the current yield.
Alexander's price target for the company is $17.50. His EPS estimates are $1.37 for 2017 and $1.56 for 2018.