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Compass Point downgrades Ares Capital to 'neutral' on stock valuation

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Compass Point downgrades Ares Capital to 'neutral' on stock valuation

Compass Point analyst Casey Alexander downgraded Ares Capital Corp. to "neutral" from "buy", saying the stock valuation does not represent a good entry point despite its assessment as a best-in-class business development company.

The analyst set a price target of $18.50 on the company's stock.

Alexander noted the BDC has a price to net asset value ratio of 1.09x, peaking at 1.15x, and while the analyst believes the ratio can go higher, he does not think it is necessary to chase a higher mark. The analyst wrote that the decision whether to buy the stock depends "on whether new money should go into the name at the current price because at the end of the day, price is everything."

Alexander also clarified that the downgrade is not related to ongoing economic conditions. While the Compass Point analyst agrees with Ares Capital's management saying they have been tested in various economic cycles, Alexander wrote that the company's investors have not been as tested in these cycles. The analyst also noted that BDCs will always track the movement of the broader markets.