Top Wall Street analysts believe the strength of Ares Capital’s origination platform, sizable balance sheet and ample liquidity position it favorably in a very competitive investing environment. Some believe that with the current tight spread environment, the company has the scale and industry relationships to continue to make competitive, high-credit-quality investments.
Investors receive an 8.45% dividend. The $24 Jefferies price target is higher than the $22.29 consensus target. Ares Capital stock closed at $19.51 on Wednesday.
Capital Southwest
Based in Dallas, which has been a hub for activity, this is another top BDC that offers long-term growth potential. Capital Southwest Corp. (NASDAQ: CSWC) specializes in credit and private equity and venture capital investments in middle-market companies, mezzanine, later stage, mature, late venture, emerging growth, buyouts, recapitalizations and growth capital investments.
It does not invest in startups, publicly traded companies, real estate developments, project finance opportunities, oil and gas exploration businesses, troubled companies, turnarounds and companies in which significant senior management is departing.
In the lower middle market, the firm typically invests in growth financing, bolt-on acquisitions, new platform acquisitions, refinancing, dividend recapitalizations, sponsor-led buyouts and management buyouts situations. The investment structures are Unitranche debt, subordinated debt, senior debt, first and second lien debt, and preferred and common equity. The firm makes equity co-investments alongside debt investments, up to 20% of total check and only makes non-control investments. It prefers to invest in Industrial manufacturing and services, value-added distribution, health care products and services, business services, specialty chemicals, food and beverage, tech-enabled services and software as a service (SaaS) models.
Capital Southwest seeks to invest in energy services and products, industrial technologies, and specialty chemicals and products. Within energy services and products, the firm seeks to invest in each segment of the industry, including upstream, midstream and downstream, excluding exploration and production with a focus on differentiated products and services, equipment and tool rental, consumable products, and drilling and completion chemicals. Within industrial technologies, it seeks to invest in automation and process controls, handling and packaging equipment, industrial filtration and fluid handling, measurement, monitoring and testing, professional tools, and sensors and instrumentation.
Within and specialty chemicals and products, the firm seeks to invest in businesses that develop and manufacture highly differentiated chemicals and products including adhesives, coatings and sealants, catalysts and absorbents, cosmeceuticals, fine chemicals, flavors and fragrances, performance lubricants, polymers, plastics and composites, chemical dispensing and filtration equipment, professional and industrial trade consumables and tools, engineered solutions for HVAC, plumbing, and electrical installations, specified high-performance materials for fire protection and oilfield applications. It may also invest in exceptional opportunities in building products.
Shareholders receive an 8.59% dividend. Jefferies has set a $27 target price. The consensus target is $26.64, and shares ended trading on Wednesday at $22.28.
FS KKR
This very well-known name on Wall Street is offering a solid entry point at current levels. FS KKR Capital Corp. (NASDAQ: FSK) is a BDC specializing in investments in debt securities. It seeks to purchase interests in loans through secondary market transactions or directly from the target companies as primary market investments.
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