Ares Capital Corporation (NASDAQ:ARCC) Earnings Preview: A Strong Buy Despite Anticipated Decline

• Earnings per share (EPS) and revenue are expected to decline by 16.4% and 1.1% year-over-year, respectively.
• ARCC's high forward dividend yield of 8.7% positions it as a strong buy for income-focused investors.
• ARCC's financial health remains robust with a strong liquidity ratio of 6.56.

Ares Capital Corporation, trading as NASDAQ:ARCC, is a prominent business development corporation (BDC) that provides financing to middle-market companies. These companies often struggle to secure loans from traditional banks due to their higher risk profiles. BDCs like Ares Capital charge higher interest rates in exchange for assuming this risk, similar to real estate investment trusts (REITs) that distribute at least 90% of their taxable income as dividends.

On July 29, 2025, ARCC is set to release its quarterly earnings, with Wall Street estimating earnings per share (EPS) at $0.51 and revenue at approximately $750.39 million. Analysts are keenly observing these figures, as they provide insights into the company's operational efficiency and financial health. Despite the anticipated decline in earnings and revenue by 16.4% and 1.1% year-over-year, respectively, ARCC remains a strong buy due to its high forward dividend yield of 8.7%.

The expected downturn in ARCC's earnings is attributed to reduced interest income and capital structuring fees. However, there might be an increase in other income and dividends. Elevated expenses, particularly from venture-stage investments, are likely to impact operating costs this quarter. In the previous quarter, ARCC's earnings fell short of the Zacks Consensus Estimate due to fewer portfolio exits and gross commitments, although improved total investment income and reduced expenses provided some support.

ARCC's profits are robust enough to comfortably cover its dividends. The company's price-to-sales ratio stands at about 7.53, while its enterprise value to sales ratio is around 13.76. The earnings yield for ARCC is approximately 9.20%, and the debt-to-equity ratio is 1.02, indicating a moderate level of debt compared to equity. Additionally, the current ratio is 6.56, suggesting strong liquidity.

Historically, Ares Capital has a weak earnings surprise record, having missed the Zacks Consensus Estimate in three of the past quarters. However, the company's shares have appreciated by 11% over the past year, highlighting its potential as a compelling opportunity for income-focused investors. As highlighted by The Motley Fool, ARCC is considered a strong buy ahead of its upcoming earnings report on July 29, 2025.