Wedbush analyst Henry Coffey initiated coverage of Ares Capital Corp. at "outperform," given its "long-standing success" at lending to middle-market companies, its price-to-book multiple and its attractive dividend yield.
Coffey also noted that Ares Capital has some loan yield tailwinds where its business development company peers are worried about headwinds. The company completed a joint venture and bought American Capital, which has given it a portfolio of about $3 billion in on-balance-sheet investments. The analyst said these investments should be able to be reinvested at a higher interest rate. The expansion in loan yield could add 18 cents per share in run-rate net investment income, he added.
His price target for the company is $18.00. Coffey's per-share net interest income estimates are $1.23 for 2017, $1.55 for 2018 and $1.75 for 2019.