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Financials · Equity Analysis
Ares Capital Corporation (ARCC) Stock Analysis — Price Target, Hold Rating & DCF Valuation (2026)
By Anton Ladnyi, CFA · ex-Goldman Sachs · ex-J.P. MorganPublished Updated
ARCC — at 0.96x NAV with $1.38/share taxable spillover cushion and 67-quarter dividend track record, the $29.5B BDC leader delivers 10.2% yield; core EPS of $0.47 vs $0.48 dividend requires ongoing monitoring of credit cycle
ARCC Price Target & Rating
ARCC's quantitative grade is Hold, with moderate downside risk (CVaR -10.6%), and quality metrics (net margin 37%, ROE 8%). Ares Capital Corporation (ARCC) trades at $18.59 with a valuation grade of Hold: a trailing P/E of 11.4x at a 19% discount to sector median, net margins of 37.3%, a DCF-implied intrinsic range of $23–$35 suggesting a +56% margin of safety, beta 0.63 (defensive risk profile).
DCF Valuation Range
Key Takeaways
Valuation: Hold grade — P/E 11.4x — DCF range $23–$35 implies +56% margin of safety
Risk: CVaR -10.6% (95th percentile, 1-month) indicates moderate tail exposure; beta of 0.63 amplifies broad market moves in both directions
Strengths: 37% net margin, 8% ROE dominate the factor profile
Catalyst: Q2 2026 dividend payment (June 30, 2026) and Q2 2026 earnings (expected late July 2026) — NII recovery above $0.48/share on stabilizing base rates would restore full dividend coverage and re-rate toward 1.0x+ NAV; any Fed pause in rate cuts is incrementally positive
Bear catalyst: Core EPS falls below $0.42 for two consecutive quarters requiring a dividend cut after 67+ quarters of stability; nonaccruals at cost exceed 4%, triggering material realized loss recognition; Fed cuts rates below 3.5% collapsing portfolio yields by 150bps+
ARCC — Quantitative SnapshotMay 2026
RatingHold
Price$18.59
Why HoldBalanced risk/reward — neither compellingly cheap nor expensive at current levels
Tail riskCVaR -10.6% over one month at the 95th percentile
DCF range$23–$35 intrinsic range; margin of safety +56%
Best useCore large-cap Financials holding — not a source of diversified sector exposure
Next watchEarnings surprise deceleration trend — monitor next quarter delivery closely
Quantitative Factor Profile
Value
4.0 / 5
Quality
3.0 / 5
Momentum
3.0 / 5
Volatility
4.5 / 5
Size
3.0 / 5
Key Metrics
ARCC Key Metrics — Ares Capital Corporation 2026
Metric
Value
Current Price
$18.59
P/E Ratio (TTM)
11.4x
Forward P/E
9.7x
P/S Ratio
4.3
Beta
0.63
Net Margin
37.3%
ROE
8.3%
Debt/Equity
112.9%
Dividend Yield
10.33%
CVaR (95%, 1M)
-10.6%
Market Cap
$13.3B
Analyst View
Anton Ladnyi, CFA · A.L. Capital AdvisoryUpdated 2026-05-23
Rating Rationale
ARCC — at 0.96x NAV with $1.38/share taxable spillover cushion and 67-quarter dividend track record, the $29.5B BDC leader delivers 10.2% yield; core EPS of $0.47 vs $0.48 dividend requires ongoing monitoring of credit cycle
Investment Thesis
↑ Bull Case
$29.5B portfolio with ~$6B liquidity and 1.10x debt-to-equity well within the 2.0x regulatory limit; scale advantages allow ARCC to originate deals that smaller BDCs cannot access, sustaining portfolio yield of 10.3-10.4%
$1.38/share taxable income spillover (67th consecutive stable/growing dividend) provides ~3 quarters of full coverage buffer even if NII temporarily dips below the $0.48 quarterly dividend
Ares Management ecosystem provides proprietary deal flow across $465B AUM platform; ARCC co-invests alongside Ares PE funds, giving access to sponsored lending opportunities at favorable terms unavailable to independent BDCs
Nonaccruals at 2.1% remain below ARCC's historical average of 2.5-3%; credit team has navigated 3 full credit cycles since 2004 inception with no permanent dividend cuts
Analyst consensus price target of $20.75 implies ~10% upside from $18.86; Q2 2026 dividend of $0.48 already declared, annualizing to $1.92/share (10.2% yield) with zero declared intention to reduce
↓ Bear Case
Core EPS of $0.47 covered dividend of $0.48 by only $0.01 in Q1 2026; three consecutive Fed rate cuts since September 2025 have compressed floating-rate yields, and further cuts to 3.5-4.0% would push NII below dividend without fee income recovery
Nonaccruals at cost increased 30bps to 2.1% in Q1 2026; if credit deterioration accelerates in a recession scenario, nonaccruals at 4-5% would trigger realized losses that erode NAV and require dividend reassessment
$412M net unrealized losses in Q1 2026 (primarily market-driven spread widening) pulled GAAP EPS to $0.13; persistent spread widening would compress NAV further from the current $19.59, removing the premium-to-book valuation case
At $29.5B portfolio size, ARCC's growth options narrow as deployment opportunities at its target risk/return profile become scarcer; pressure to deploy $6B liquidity in a competitive lending market could lead to yield compression on new originations
What Changes the Rating
↑Catalyst:NII recovers to $0.50+ per share in two consecutive quarters confirming dividend coverage cushion; nonaccruals stabilize below 2% at cost signaling peak-credit-cycle thesis; Fed signals rate pause allowing floating-rate portfolio yields to stabilize at 10%+
↓Stop / exit:Core EPS falls below $0.42 for two consecutive quarters requiring a dividend cut after 67+ quarters of stability; nonaccruals at cost exceed 4%, triggering material realized loss recognition; Fed cuts rates below 3.5% collapsing portfolio yields by 150bps+
Anton’s personal note
Hold means what it says here — I am not selling, but I am not buying either. The risk/reward at current prices is roughly balanced, and roughly balanced is not enough reason to deploy fresh capital. What I watch on this name is earnings consistency — specifically whether delivery against consensus is stable or deteriorating. That is usually where the rating gets confirmed or challenged before the price reflects it. A pullback of 10–15% from here would open the margin of safety enough that I would want to add. An earnings miss at the current multiple would do the opposite — that would be the signal to reduce rather than wait.
ARCC — P/E 11.4x · Beta 0.63 • Quantitative grade: Hold • CVaR from one-year daily history · historical simulation
DCF Scenario Analysis
Hover each scenario for detail · current price $18.59
▼
Bear Case
$16
-11.2%
Fwd P/E: 8.6x
-5% revenue CAGR · 0.84x NAV exit multiple
◆
Base Case
$21
+13.0%
Fwd P/E: 10.9x
+3% revenue CAGR · 1.07x NAV exit multiple
▲
Bull Case
$24
+26.4%
Fwd P/E: 12.2x
+8% revenue CAGR · 1.20x NAV exit multiple
Pairwise Correlation Matrix
6 of 10 peer pairs correlated above 0.60 — diversification benefit within this cluster is structurally limited.
Extended Analysis — Buy, Hold or Sell? Risk Factors. Portfolio Fit.
Is ARCC a buy, hold, or sell?
ARCC carries a valuation grade of Hold. At a trailing P/E of 11.4, the stock trades at a 19% discount to the Financials sector median of 14.0x. Our discounted cash flow model produces an intrinsic range of $23–$35 — implying a +56% margin of safety at the current price of $18.59. The width of the DCF range reflects genuine uncertainty in the terminal growth rate assumption: the correct framework is a probability-weighted distribution over scenarios, not a single point estimate. See the DCF valuation framework for full methodology.
With a 25% beat rate on recent quarters, earnings predictability has been mixed. The most recent quarter missed by a 2.5% earnings surprise. Analyst estimate revisions are trending upward.
What are ARCC's key risk factors?
With a beta of 0.63, ARCC exhibits a defensive risk profile relative to the broad market. The 95th-percentile CVaR of -10.6% on a one-month horizon should inform position sizing directly: at a 10% portfolio weight, this tail event contributes approximately 1.1% of total portfolio loss in the worst 5% of months. Net margins of 37.3% are significantly above the Financials sector average of 28%, reflecting durable pricing power. Leverage is moderate with debt-to-equity at 113%.
The options market shows a put/call ratio of 1.64, reflecting a notably bearish skew in derivative positioning. Implied volatility of 29.5% exceeds realized volatility of 16.4% by 13 points, suggesting options are pricing in elevated risk. Insider transactions show net buying of $2.3M over the trailing period, a signal often associated with management confidence. Short interest stands at 6.0% of float, a moderate level.
How does ARCC fit in a diversified portfolio?
At typical HENRY portfolio weights — 10–20% of the equity allocation — ARCC carries a beta of 0.63, meaning it amplifies broad market moves proportionally. The appropriate weight is not a function of conviction alone, but of the full covariance structure across all holdings. See the Ledoit-Wolf covariance framework for the methodology behind these calculations.
Among closely correlated names, ARCC shows the strongest co-movement with OBDC (0.82), BXSL (0.79), MAIN (0.70). Investors seeking diversification should note these correlation dynamics when constructing multi-asset portfolios. With the top peer correlation at 0.82, adding ARCC to a portfolio that already holds these names provides limited marginal diversification benefit — particularly during stress events when correlations converge toward 1.0.
True portfolio risk is a function of the full covariance structure across all holdings — not individual stock metrics. The Portfolio Health Check quantifies this at the portfolio level: it surfaces hidden concentration, marginal CVaR contributions, and the degree to which your overall allocation deviates from an optimal risk-adjusted mandate. The ARCC analysis here is a single node in that larger structure.
For the portfolio construction framework underpinning ARCC’s position sizing and conviction rating — including IPS guardrails, Black-Litterman allocation, and CVaR constraints — see: Investment Policy Statement Framework →
Investor FAQ
Is ARCC a buy or sell in 2026?
Ares Capital Corporation (ARCC) carries a Hold quantitative rating from A.L. Capital Advisory, derived from Discounted Cash Flow intrinsic value analysis, five-factor model scoring (Value, Quality, Momentum, Volatility, Size), and CVaR tail risk measurement. At $18.59, the DCF midpoint margin of safety is +56% (intrinsic value range: $23 bear – $35 bull). Composite factor score: 3.5/5. Strongest factor: Volatility (4.5/5). Weakest factor: Quality (3.0/5). Trailing P/E: 11.4x. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Portfolio Construction Framework →
What is the average analyst target price for ARCC?
Wall Street consensus target for ARCC: $20.85 (+12.1% upside from the current price of $18.59). The analyst target range spans $19.00 (most bearish) to $23.00 (most bullish). Consensus recommendation: Buy. Note that analyst price targets typically reflect a 12-month forward horizon and are derived from a blend of DCF, comparable-company, and sum-of-the-parts analysis. A.L. Capital Advisory’s quantitative Hold rating is produced independently — from DCF intrinsic value, five-factor model scores, and CVaR tail risk — and does not mechanically track Street consensus. When the two diverge, the divergence itself is informative: it can reflect differences in time horizon, valuation methodology, or the degree to which the current price already discounts the consensus case. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Monte Carlo Simulation Framework →
How does ARCC score on Value, Quality, Momentum, Volatility, and Size?
ARCC five-factor scores (A.L. Capital Advisory, 1–5 scale): Value 4.0/5 (above average) — measures current price versus DCF intrinsic range and trailing earnings multiples; Quality 3.0/5 (neutral) — captures profitability metrics including return on equity, net margin (ROE: 8.3%) and net margin (37.3%); Momentum 3.0/5 (neutral) — reflects recent price trajectory and earnings surprise consistency; Volatility 4.5/5 (strong) — inverse measure derived from beta, where lower historical volatility earns a higher score; Size 3.0/5 (neutral) — market capitalisation rank (mega-cap $1T+ scores 5/5). Composite: 3.5/5. Factor scores above 4.0 signal a tailwind in that dimension; below 2.0 signals a material headwind. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Black-Litterman Model →
What is ARCC's tail risk and CVaR?
The 95th-percentile Conditional Value at Risk (CVaR) for ARCC on a one-month horizon is -10.6%. CVaR represents the expected average loss in the worst 5% of monthly outcomes — a more conservative tail risk measure than standard VaR, which only marks the loss threshold. Beta of 0.63 indicates below-market volatility. For reference, a diversified S&P 500 ETF carries a one-month CVaR of roughly -8% to -12% in normal market conditions; individual equity CVaR is higher due to idiosyncratic risk. At the portfolio level, what matters is the marginal CVaR contribution of each holding — not its standalone figure. The A.L. Capital Advisory Portfolio Health Check quantifies each position's marginal tail-risk contribution across your entire holdings. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: CVaR & Tail-Risk Methodology →
What is ARCC's intrinsic value and DCF price target?
A.L. Capital Advisory's DCF model produces an intrinsic value range of $23 (bear case) to $35 (bull case) for Ares Capital Corporation (ARCC). At $18.59, the midpoint margin of safety is +56% (positive = discount to intrinsic mid; negative = premium). The bear-to-bull spread reflects genuine sensitivity to the two dominant DCF inputs: the terminal growth rate and WACC. Terminal value typically accounts for 60-80% of total intrinsic value in most equity DCF models, which is why a range is more analytically sound than a point estimate. The central analytical question is not what the DCF outputs as a single number but which growth trajectory the current market price already discounts. All DCF analysis follows CFA Institute standards and is conducted by Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: DCF Valuation Framework →
What would trigger a rating upgrade or downgrade for ARCC?
Upgrade trigger: A price pullback that opens the margin of safety beyond +15% (approximately $20 based on the DCF bear case); or a return to consistent above-consensus EPS delivery for two consecutive quarters. Downgrade trigger: a sustained reversal in the Quality and Momentum factor scores for two or more consecutive quarters. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Investment Policy Statement Framework →
Does ARCC consistently beat earnings estimates?
ARCC has beaten consensus EPS estimates in 25% of tracked quarterly periods — indicating inconsistent delivery. The most recent reported quarter missed consensus by 2.5%. Below-average earnings consistency is a primary headwind to the rating and a key watch item in the quantitative model. Earnings surprise magnitude and direction are incorporated into the Momentum and Quality dimensions of the five-factor scoring model. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: DCF Valuation Framework →
How does ARCC contribute to portfolio risk and diversification?
ARCC carries a beta of 0.63 (low-volatility / defensive relative to the broad equity market). A beta above 1.0 means the position amplifies market moves in both directions at a typical portfolio weight. Strongest peer co-movement: OBDC (0.82), BXSL (0.79), MAIN (0.70). Holding ARCC alongside these names in the same portfolio increases concentration risk. True portfolio risk is a function of the full covariance structure — a single stock's beta does not reveal its marginal contribution to portfolio tail loss. The A.L. Capital Advisory Portfolio Health Check quantifies concentration risk (Herfindahl-Hirschman Index), pairwise correlations, and marginal CVaR contribution across all your holdings. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Ledoit-Wolf Covariance Framework →
What quantitative methodology does A.L. Capital Advisory use to analyse ARCC?
A.L. Capital Advisory analyses Ares Capital Corporation (ARCC) using a four-component quantitative framework grounded in CFA Institute standards. (1) DCF Valuation: projects free cash flows under bear and bull assumptions, discounts at WACC to produce an intrinsic value range with margin-of-safety calculation. (2) Five-Factor Scoring: each equity is scored 1–5 on Value, Quality, Momentum, Volatility, and Size. (3) CVaR Tail Risk: 95th-percentile Conditional Value at Risk from historical simulation of daily returns on a one-month horizon. (4) Earnings Surprise Analysis: quarterly beat rate and magnitude are incorporated into the Momentum and Quality factor scores. The current Hold rating for ARCC is the output of applying this complete framework to current data. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: DCF Valuation Framework → · CVaR & Tail-Risk Methodology →
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This analysis is produced using a systematic quantitative framework applied to market data and does not constitute investment advice. Prose commentary is AI-assisted and generated from structured quantitative inputs. All data and metrics are as of 2026-05-23 and are point-in-time estimates subject to revision without notice. CVaR figures are based on historical simulation and do not guarantee future outcomes. DCF ranges and upgrade/downgrade triggers are forward-looking statements based on current assumptions and may not materialise. Past performance does not guarantee future results. This analysis does not account for individual circumstances, tax position, or investment objectives — consult a qualified financial advisor before making investment decisions. This content is intended for informational purposes only and does not constitute regulated investment advice under MiFID II or FCA guidelines. This content is not intended for US persons or residents of jurisdictions where its distribution would be contrary to local law or regulation. This service is not directed at residents of Finland, Sweden, Norway, Denmark, Iceland, or Poland. The author may hold long or short positions in securities mentioned in this analysis. Nothing on this page represents a solicitation to buy or sell any security. A.L. Capital Advisory is an independent private advisory practice and is not affiliated with Ares Capital Corporation.
CFA Portfolio Advisory — ARCC
Discuss this analysis, position sizing, or your full portfolio mandate with Anton Ladnyi, CFA.
