Ares Capital's NAV, Dividend, And Valuation Versus 14 BDC Peers (Post Q1 2020 Earnings - Attractive Valuation)

Summary

• Part 1 of this article compares ARCC’s recent quarterly change in NAV, quarterly and trailing twelve-month economic return, NII, and current valuation to fourteen BDC peers.
• Other metrics analyzed include each company’s oil and gas exposure, NII per share, price to annualized NII ratio, and percentage of income attributable to capitalized PIK income.
• As a direct result of the COVID-19 sector sell-off, some stocks (including ARCC) remain attractively valued.
• My buy, sell, or hold recommendation and updated price target for ARCC is stated in the “Conclusions Drawn” section of the article.
• I also provide a list of the other BDC stocks I currently believe are undervalued (a buy recommendation), overvalued (a sell recommendation), and appropriately valued (a hold recommendation).
• This idea was discussed in more depth with members of my private investing community, The REIT Forum. Get started today »

Focus of Article

The focus of PART 1 of this article is to analyze Ares Capital Corp.'s (NASDAQ:ARCC) recent results and compare a handful of the company's metrics to fourteen business development company ("BDC") peers. This analysis will show past and current data with supporting documentation within two detailed tables. Table 1 will compare ARCC's recent net asset value ("NAV") economic return (loss), net investment income ("NII"), stock price to annualized NII ratio, and percentage of total investment income attributable to capitalized payment-in-kind ("PIK") income to the fourteen BDC peers. Table 1 will also provide a premium (discount) to estimated CURRENT NAV analysis using stock prices as of 6/5/2020. Table 2 will compare ARCC's investment portfolio (including several additional metrics) as of 12/31/2019 and 3/31/2020 to the fourteen BDC peers.

I am writing this two-part article due to the continued requests that such an analysis be specifically performed on ARCC and some of the company's BDC peers at periodic intervals. These BDC peers include Apollo Investment Corp. (AINV), FS KKR Capital Corp. (FSK), Gladstone Investment Corp. (GAIN), Golub Capital BDC Inc. (GBDC), Main Street Capital Corp. (MAIN), NEWTEK Business Services Corp. (NEWT), Oaktree Strategic Income Corp. (OCSI), Oaktree Specialty Lending Corp. (OCSL), Owl Rock Capital Corp. (ORCC), PennantPark Floating Rate Capital Ltd. (PFLT), Prospect Capital Corp. (PSEC), Solar Capital, Ltd. (SLRC), BlackRock TCP Capital Corp. (TCPC), and TPG Specialty Lending Corp. (TSLX). Currently, I am not expanding my BDC coverage list due to the fact, along with the 15 BDC stocks listed above, I fully cover 21 mortgage real estate investment trust (mREIT) companies on Seeking Alpha.

Understanding the characteristics of a company's investment portfolio and operating performance can shed some light on which companies are overvalued or undervalued strictly per a "numbers" analysis. This is not the only data that should be examined to initiate a position within a particular stock/sector. However, I believe this analysis would be a good "starting-point" to begin a discussion on the topic. My BUY, SELL, or HOLD recommendation and current price target for ARCC will be in the "Conclusions Drawn" section of the article. This includes providing a list of the BDC stocks I currently believe are undervalued (a buy recommendation), overvalued (a sell recommendation), or appropriately valued (a hold recommendation).

NAV, Economic Return (Loss), Current Premium (Discount) to NAV, and NII Analysis - Overview

Let us start this analysis by getting accustomed to the information provided in Table 1 below. This will be beneficial when explaining how ARCC compares to the company's fourteen BDC peers regarding the metrics stated above. Due to the fact several BDC peers listed in Table 1 have a different fiscal year-end, all quarterly results are based on a calendar year-end. For instance, all metrics below are stated "Q1 2020" even though this does not correspond to every company's fiscal year-end. Readers should be aware as such when the analysis is presented below.

Table 1 - NAV, Economic Return (Loss), Current Premium (Discount) to NAV, NII, and Capitalized PIK Analysis

(Source: Table created by me, obtaining historical stock prices from NASDAQ and each company's NAV per share figures from the SEC's EDGAR Database)

Table 1 above provides the following information on ARCC and the fourteen BDC peers (see each corresponding column): 1) NAV per share at the end of the calendar fourth quarter of 2019; 2) NAV per share at the end of the calendar first quarter of 2020; 3) NAV per share change during the calendar first quarter of 2020 (percentage); 4) economic return (loss) (change in NAV and accrued dividend) during the calendar first quarter of 2020 (percentage); 5) economic return (loss) during the trailing twelve-months (percentage); 6) my estimated CURRENT NAV per share (NAV as of 6/5/2020); 7) stock price as of 6/5/2020; 8) 6/5/2020 premium (discount) to my estimated CURRENT NAV (percentage); 8) NII per share during the calendar first quarter of 2020; 9) NII per share change versus the prior quarter; 10) NII per share change versus the first quarter of 2019; 11) 6/5/2020 stock price to annualized NII ratio; 12) percentage of total investment income attributable to capitalized PIK (deferred) income; 13) 6/5/2020 BUY, SELL, or HOLD recommendation;and 14) BUY, SELL, and HOLD recommendation range, relative to my estimated CURRENT NAV (metric solely for the REIT Forum subscribers). Now that an overview has been provided, let us start the comparative analysis.

Analysis of ARCC

Using Table 1 above as a reference, ARCC had a NAV of $17.32 per share at the end of the calendar fourth quarter of 2019. ARCC had a NAV of $15.58 per share at the end of the calendar first quarter of 2020. This calculates to a quarterly NAV decrease of ($1.74) per share or (10.05%). When including ARCC's quarterly dividend of $0.40 per share, the company had an economic loss (change in NAV and accrued dividend) of ($1.34) per share or (7.74%) for the calendar first quarter of 2020. It should also be noted ARCC had a trailing twelve-month economic return of $0.03 per share or 0.17%.

ARCC's performance during the past four quarters was mainly attributable to the following three factors: 1) modest net underpayment of dividends when compared to the company's NII; 2) minor net realized losses/depreciation within some investments (especially the most recent quarter);and 3) minor net unrealized gain/appreciation within some of the company's active investment portfolio. This is a good transition to the next topic of discussion, an analysis of ARCC's investment portfolio (including several additional metrics) as of 12/31/2019 and 3/31/2020. To begin this analysis, Table 2 is provided below.

Table 2 - Investment Portfolio Composition Analysis (Including Several Additional Metrics; 3/31/2020 Versus 12/31/2019)

(Source: Table created by me, directly obtaining some figures/percentages from the SEC's EDGAR Database [link provided below Table 1]. All remaining figures/percentages were calculated using data obtained within the SEC's EDGAR Database)

Using Table 2 above as a reference, ARCC had 48% and 28% of the company's investment portfolio in senior secured first- and second-lien loans as of 3/31/2020, respectively. As such, these types of loans comprised the majority of ARCC's investment portfolio. When compared to the prior quarter, ARCC's percentage of senior secured first- and second-lien loans increased 4% and decreased (2%), respectively. ARCC also had 12%, less than 1%, and 12% of the company's investment portfolio in subordinated debt (unsecured loans), collateralized loan obligation ("CLO")/credit-linked notes ("CLN") (structured securitizations) + other, and equity/warrants, respectively. When compared to the prior quarter, ARCC's percentage of subordinated debt (unsecured loans), CLO/CLN (structured securitizations) + other, and equity/warrants remained unchanged, remained unchanged, and decreased (2%), respectively. As such, there was no notable shift in investment portfolio composition during the calendar first quarter of 2020.

As of 3/31/2020, ARCC's investment portfolio had a "fair market value ("FMV") versus cost" ratio of 0.9276x. When compared to the fourteen BDC peers within this analysis, this ratio was slightly below the mean of 0.9300x. When compared to a ratio of 0.9816x as of 12/31/2019, ARCC's ratio modestly decreased during the calendar first quarter of 2020 which was mainly due to the fact ARCC, like all BDC peers, experienced a notable rise in credit spreads and increase in credit risk as a direct result of the COVID-19 pandemic. This directly led to unrealized depreciation being recorded within most of ARCC's investment portfolio. A more detailed "breakdown" of ARCC's quarterly performance was provided in the following Marketplace Service article:

Scott Kennedy's "Rapid Fire" mREIT Earnings Series: Assessing New Residential Investment's, Ares Capital's, TPG Specialty Lending's, And Owl Rock Capital's Performance For Q1 2020

ARCC had 3.1% and 1.7% of the company's investment portfolio on "non-accrual" status as of 3/31/2020; based on its amortized cost basis and FMV, respectively. When compared to the fourteen BDC peers as of 3/31/2020, ARCC's amortized cost and FMV non-accrual percentage was slightly-modestly below the mean of 4.8% and 2.3%, respectively. In addition, unlike some BDC peers, ARCC's non-accrual percentages did not experience a notable "uptick" during the trailing twelve-months (a positive catalyst/trend).

Since the company's initial public offering ("IPO"), ARCC's investment portfolio as of 3/31/2020 had generated a cumulative realized loss of ($0.04) per share (when based on a per share count as of 3/31/2020). ARCC's cumulative realized gain (loss) figure was slightly-modestly more attractive when compared to the mean of ($0.44) per share. I believe calculating a BDC's cumulative realized gain (loss) per share amount provides an extremely useful metric when analyzing the long-term performance of management's underwriting abilities, due diligence, expertise, and operational performance. This metric provides direct evidence ARCC's management team has continued to find attractive debt/equity investments over a long period of time which, more times than not, have ultimately delivered attractive risk-adjusted returns. I am the only contributor on Seeking Alpha to provide this specific metric (also considers Marketplace services; includes reconciling all necessary cumulative adjustments within this account to provide a "proper/true" per share amount). This holds especially true due to the fairly recent Generally Accepted Accounting Principles ("GAAP") disclosure change when it comes to equity presentation.

As of 3/31/2020, 2.33% of ARCC's portfolio had debt and equity investments within the oil and gas sector (based on FMV; including certain investments in the energy sector which had "oil and gas" characteristics and/or services closely linked to the sector). When compared to the fourteen BDC peers within this analysis, ARCC's oil and gas exposure basically matched the mean of 2.32%. When compared to the prior quarter, ARCC's exposure to the oil and gas sector slightly decreased; mainly due to FMV fluctuations.

Once again using Table 1 as a reference, ARCC's NII of $0.544 per share during the calendar first quarter of 2020 exceeded all but two BDC peers within this analysis. When comparing each company's stock price as of 6/5/2020 to its annualized NII, ARCC had the fifth-lowest ratio at 7.12x (a slightly positive catalyst/factor). ARCC's current annualized NII ratio is slightly more attractive when compared to the fourteen-peer ratio of 8.01x as of 6/5/2020.

During the calendar first quarter of 2020, 6.23% of ARCC's total investment income was attributable to capitalized PIK income which was an increase of 1.07% when compared to the prior quarter. When compared to the fourteen BDC peers within this analysis, this was modestly above the mean of 3.62% (a more cautious factor/trend). I believe it is never a positive catalyst/trend when a BDC has any portion of its accrued income classified as being capitalized/deferred. Simply put, under GAAP, PIK income is revenue that is currently being "booked" but has not actually been received in cash yet. In a majority of cases, capitalized PIK income is paid in cash at maturity/when a sale occurs. However, more times than not, capitalized PIK income is a contractual amendment regarding a portfolio company who is, at the time, having operational difficulties (which increases the probability of the inability of paying its loan obligations). As such, it is usually the case capitalized PIK income is never "completely" received in cash upon maturity/when a sale occurs. In my professional opinion, if a BDC has a large/above average portion of its investment income classified/accrued as capitalized PIK income, it should be seen as a concern regarding future performance/credit quality.

As of 6/5/2020, ARCC's stock price traded at $15.49 per share. When calculated, ARCC's stock price was trading at a discount to my estimated CURRENT NAV (NAV as of 6/5/2020; $16.00 per share) of ($0.51) per share or (3.19%). This was modestly above the fourteen-peer average of (7.36%).

Comparison of ARCC's NAV, Economic Return, Valuation, NII, and Other Metrics to Fourteen BDC Peers in Ranking Order

Many readers have continued to request that I provide multiple metrics for the BDC stocks I currently cover in ranking order. As such, using Table 1 above as a reference (without having to produce seven additional tables), the following were the economic return (loss) percentages for ARCC and the fourteen BDC peers during the trailing twelve-months (in order of highest to lowest economic return/lowest to highest economic loss; very good indication of recent overall performance):

1) NEWT: 12.41% economic return

2) TSLX: 6.12% economic return

3) ORCC: 2.23% economic return

4) GBDC: 0.63% economic return (partially due to fairly recent accretive merger)

5) ARCC: 0.17% economic return

6) PFLT: 0.15% economic return

7) GAIN: (1.60%) economic loss

8) MAIN: (3.03%) economic loss

9) PSEC: (4.19%) economic loss

10) SLRC: (4.79%) economic loss

14) TCPC: (6.91%) economic loss

12) AINV: (8.18%) economic loss

13) OCSL: (12.67%) economic loss

14) FSK: (12.85%) economic loss

15) OCSI: (20.02%) economic loss

Next, the following were the non-accrual percentages for ARCC and the fourteen BDC peers as of 3/31/2020 (in order of lowest to highest percentage; based on amortized cost [excluding any debt-to-equity exchanges and recently written-off/sold investments]):

The REIT Forum Metric

8) ARCC: 3.1% non-accrual rate (1.9% as of 12/31/2019)

Next, the following were the cumulative realized gain (loss) per share amounts for ARCC and the fourteen BDC peers as of 3/31/2020 (share count as of 3/31/2020; excluding AINV's fairly recent reverse 1:3 stock split in order to more accurately present past performance) in order of highest to lowest realized gain/lowest to highest realized loss [great indication of long-term performance of management's underwriting abilities/due diligence/expertise]):

The REIT Forum Metric

7) ARCC: ($0.04) per share cumulative realized loss (IPO = 2004)

Next, the following were the 6/5/2020 premium (discount) to my estimated CURRENT NAV per share (NAV as of 6/5/2020) percentages for ARCC and the fourteen BDC peers (in order of largest to smallest discount/smallest to largest premium):

1) FSK: (33.55%) discount to my estimated NAV as of 6/5/2020

2) PSEC: (31.01%) discount to my estimated NAV as of 6/5/2020

3) AINV: (27.85%) discount to my estimated NAV as of 6/5/2020

4) PFLT: (25.21%) discount to my estimated NAV as of 6/5/2020

5) OCSL: (16.04%) discount to my estimated NAV as of 6/5/2020

6) GBDC: (16.03%) discount to my estimated NAV as of 6/5/2020

7) TCPC: (13.67%) discount to my estimated NAV as of 6/5/2020

8) SLRC: (13.32%) discount to my estimated NAV as of 6/5/2020

9) OCSI: (12.33%) discount to my estimated NAV as of 6/5/2020

10) ORCC: (12.19%) discount to my estimated NAV as of 6/5/2020

11) GAIN: (3.22%) discount to my estimated NAV as of 6/5/2020

12) ARCC: (3.19%) discount to my estimated NAV as of 6/5/2020

13) NEWT: 15.48% premium to my estimated NAV as of 6/5/2020

14) TSLX: 21.21% premium to my estimated NAV as of 6/5/2020

15) MAIN: 60.56% premium to my estimated NAV as of 6/5/2020

Next, the following were the NII (loss) per share amounts for ARCC and the fourteen BDC peers during the calendar first quarter of 2020 (in order of highest to lowest NII per share/lowest to highest net investment loss per share):

1) AINV: $0.589 per share NII; $0.045 increase versus Q4 2019; $0.117 increase versus Q1 2019

2) MAIN: $0.566 per share NII; ($0.049) decrease versus Q4 2019; ($0.072) decrease versus Q1 2019

3) ARCC: $0.544 per share NII; $0.101 increase versus Q4 2019; $0.073 increase versus Q1 2019 (capital gains incentive fee reversal during Q1 2020)

4) TSLX: $0.505 per share NII; ($0.004) decrease versus Q4 2019; $0.099 increase versus Q1 2019 (notable "sporadic" original issue discount [OID] accretion/fee income during some quarters)

5) GAIN: $0.448 per share NII; $0.261 increase versus Q4 2019; $0.282 increase versus Q1 2019 (notable capital gains incentive fee reversal during Q1 2020)

6) TCPC: $0.376 per share NII; ($0.005) decrease versus Q4 2019; ($0.021) decrease versus Q1 2019

7) SLRC: $0.375 per share NII; ($0.030) decrease versus Q4 2019; ($0.062) decrease versus Q1 2019

8) ORCC: $0.372 per share NII; unchanged versus Q4 2019; ($0.035) decrease versus Q1 2019

9) PFLT: $0.303 per share NII; $0.016 increase versus Q4 2019; ($0.001) decrease versus Q1 2019

10) GBDC: $0.239 per share NII; ($0.008) decrease versus Q4 2019; ($0.093) increase versus Q1 2019 (negatively impacted by merger-related accretion reversal)

11) FSK: $0.194 per share NII; ($0.003) decrease versus Q4 2019; $0.014 increase versus Q1 2019

12) PSEC: $0.186 per share NII; $0.001 increase versus Q4 2019; ($0.024) decrease versus Q1 2019

13) OCSL: $0.162 per share NII; $0.106 increase versus Q4 2019; $0.036 increase versus Q1 2019 (capital gains incentive fee reversal during Q1 2020)

14) OCSI: $0.155 per share NII; ($0.005) decrease versus Q4 2019; ($0.022) decrease versus Q1 2019

15) NEWT: ($0.014) per share net investment loss; $0.138 increase versus Q4 2019; $0.038 increase versus Q1 2019 (different type of business models versus other all BDC peers; better metric to "track" is adjusted NII)

Next, the following were the 6/5/2020 stock price to annualized NII per share amounts for ARCC and the fourteen BDC peers during the calendar first quarter of 2020 (in order of lowest to highest ratio; lower ratio = better):

1) AINV: 4.84x (3.56x as of 3/20/2020)

2) FSK: 5.19x (3.15x as of 3/20/2020)

3) GAIN: 6.21x (10.29x as of 3/20/2020)

4) TCPC: 6.89x (3.94x as of 3/20/2020)

5) ARCC: 7.12x (5.85x as of 3/20/2020)

6) OCSL: 7.19x (11.29x as of 3/20/2020)

7) PSEC: 7.32x (6.50x as of 3/20/2020)

8) PFLT: 7.34x (3.84x as of 3/20/2020)

9) ORCC: 8.62x (6.87x as of 3/20/2020)

10) TSLX: 9.45x (6.65x as of 3/20/2020)

11) OCSI: 10.34x (8.59x as of 3/20/2020)

12) SLRC: 11.41x (6.03x as of 3/20/2020)

13) GBDC: 13.06x (11.31x as of 3/20/2020)

14) MAIN: 15.13x (7.24x as of 3/20/2020)

15) NEWT: N/A (Q1 2020 net investment loss) (N/A as of 3/20/2020)

Finally, the following were the percentage of total investment income attributable to capitalized PIK (deferred) income for ARCC and the fourteen BDC peers during the calendar first quarter of 2020 (in order of lowest to highest percentage [very good indication of overall "health" of investment portfolio; especially higher PIK percentages]):

1) GAIN: 0.00% capitalized PIK income (0.00% last quarter)

1) NEWT: 0.00% capitalized PIK income (0.00% last quarter)

3) SLRC: 0.47% capitalized PIK income (0.28% last quarter)

4) MAIN: 1.05% capitalized PIK income (2.53% last quarter)

5) AINV: 1.60% capitalized PIK income (3.84% last quarter)

6) ORCC: 1.67% capitalized PIK income (1.98% last quarter)

7) TSLX: 2.71% capitalized PIK income (3.04% last quarter)

8) OCSI: 2.87% capitalized PIK income (0.03% last quarter)

9) GBDC: 4.01% capitalized PIK income (1.52% last quarter)

10) PFLT: 4.14% capitalized PIK income (3.34% last quarter)

11) OCSL: 5.69% capitalized PIK income (3.75% last quarter)

12) TCPC: 5.85% capitalized PIK income (5.55% last quarter)

13) ARCC: 6.23% capitalized PIK income (4.66% last quarter)

14) FSK: 8.94% capitalized PIK income (4.49% last quarter)

15) PSEC: 9.03% capitalized PIK income (4.12% last quarter)

Conclusions Drawn (PART 1)

PART 1 of this article has analyzed ARCC and fourteen BDC peers in regards to the following metrics: 1) trailing twelve-month economic return (loss) (good indicator of recent overall performance); 2) percentage of investments on non-accrual status as of 3/31/2020 (good indicator of overall portfolio health); 3) cumulative gain (loss) per share as of 3/31/2020 (great indicator of long-term performance); 4) current premium (discount) to my estimated CURRENT NAV per share (NAV as of 6/5/2020); 5) quarterly NII per share; 6) current stock price to annualized NII ratio (good indicator of overall valuation);and 7) percentage of total investment income attributable to capitalized PIK (deferred) income (good indicator of overall portfolio health).

When compared to the fourteen BDC peers within this analysis, I believe ARCC once again outperformed a majority of the company's BDC peers I currently cover during the calendar first quarter of 2020. This includes, but be not limited to, ARCC's NII per share, a less severe economic loss percentage, a modestly below average percentage of investments on non-accrual status as of 3/31/2020, only a very minor cumulative realized loss per share amount as of 3/31/2020, and an above average trailing twelve-month economic return (loss) percentage (a positive catalyst/factor).

That said, this article also highlighted ARCC had a very slightly below average FMV versus cost ratio, an average exposure to the oil and gas sector (including certain investments in the energy sector which had oil and gas characteristics and/or services closely linkedto the sector), and a slightly-modestly above average capitalized PIK income percentage which should be considered a more "cautious"/negative factor/trend.

My BUY, SELL, or HOLD Recommendation

From the analysis provided above, including additional factors not discussed within this article, I currently rate ARCC as a SELL when I believe the company's stock price is trading at or greater than a 10% premium to my projected CURRENT NAV (NAV as of 6/5/2020; $16.00 per share), a HOLD when trading at less than a 10% premium but greater than my projected CURRENT NAV, and a BUY when trading at or less than my projected CURRENT NAV. These ranges are unchanged when compared to my last public ARCC article (approximately 2.5 months ago).

Therefore, I currently rate ARCC as a BUY

As such, I currently believe ARCC is undervalued from a stock price perspective. My current price target for ARCC is approximately $17.60 per share. This is currently the price where my recommendation would change to a SELL. The current price where my recommendation would change to a HOLD is approximately $16.00 per share.

Even with the recent reversal in the U.S. London Interbank Offered Rate (LIBOR) (which has begun to have a more negative impact on floating-rate debt investments with no/a low LIBOR floor; discussed in PART 2), ARCC's "cushion" to maintain the company's quarterly dividend per share rate of $0.40 per share remains better than most peers.

With that said, if the COVID-19 pandemic "persists" through most-all of 2020, the severity of overall loan non-accruals/write-offs/restructurings will be higher which would impact the entire BDC sector. I still believe SOME current stock price valuations (including ARCC) have already priced in MOST of this more "bearish" outcome.However, I believe that is NOT the case with all BDC stocks.

BDC Sector Recommendations as of 2/21/2020 and 6/5/2020

Finally, once again using Table 1 above as a reference, I want to highlight to readers what I conveyed to readers when it came to sector recommendations as of 2/21/2020 (pre sell-off).

As of 2/21/2020, I had a BUY recommendation on the following BDC stocks analyzed above (in no particular order): 1) SLRC; 2) NEWT; and 3) ORCC.

As of 2/21/2020, I had a HOLD recommendation on the following BDC stocks analyzed above (in no particular order): 1) ARCC; 2) OCSL; 3) FSK; 4) GAIN; 5) PSEC; 6) GBDC; 7) TCPC; 8) OCSI; and 9) PFLT.

As of 2/21/2020, I had a SELL recommendation on the following BDC stocks analyzed above (in no particular order): 1) AINV; 2) MAIN; and 3) TSLX.

So, prior to the recent notable sell-off, as of 2/21/2020 I had 0 BDCs rated as a STRONG BUY, only 3 rated as a BUY, 9 rated as a HOLD, 3 rated as a SELL, and 0 rated as a STRONG SELL. While these recommendations were certainly not the most "bearish" sentiment possible (had more bearish sentiment regarding the mREIT stocks I cover), I still believe they were somewhat "cautious" in nature; especially when compared to most contributors back in February 2020.Investors who "heeded" this advice were, at least, able to "lock-in" some notable gains (as sector valuations "ran up") which helped offset recent sector/market losses (myself included). At the time, this was in direct contradiction to MOST contributors that cover the BDC sector.

Still using Table 1 above as a reference, I want to highlight to readers what we are conveying to subscribers when it comes to sector recommendations as of 6/5/2020 (last week's close).

As of 6/5/2020, I currently have a STRONG BUY recommendation on the following BDC stock analyzed above: 1) GBDC

As of 6/5/2020, I currently have a BUY recommendation on the following BDC stocks analyzed above (in no particular order): 1) ARCC; 2) SLRC; 3) NEWT; 4) PFLT; and 5) ORCC.

As of 6/5/2020, I currently have a HOLD recommendation on the following BDC stocks analyzed above (in no particular order): 1) AINV; 2) OCSL; 3) FSK; 4) GAIN; 5) PSEC; 6) TCPC; and 7) TSLX.

As of 6/5/2020, I currently have a SELL recommendation on the following BDC stock analyzed above (in no particular order): 1) OCSI.

As of 6/5/2020, I currently have a STRONG SELL recommendation on the following BDC stock analyzed above (in no particular order): 1) MAIN.

While there are currently less "notably attractive" valuations (STRONG BUY recommendation) out of the 15 BDC stocks when compared to last quarter's sector comparison article, there are still some stocks that I believe are attractively valued (BUY recommendation). Simply put, still some attractive opportunities out there in this sector. That said, just not as many attractive-very attractive stocks as last quarter's analysis.

Important Note on Recent Market Sell-Off/Panic (And Subsequent Partial Reversal)

As a remainder, and I CANNOT STRESS THIS ENOUGH, my/our BUY, SELL or HOLD recommendation ranges are "matched/paired to" the risk rating classifications of each and every mREIT and BDC stock. My assigned risk ratings, for each mREIT and BDC stock, are provided to subscribers of the REIT Forum. These risk ratings run from a scale of 1-6 (1 has the least amount of risk while 6 has the greatest amount of risk). This is EXTREMELY important to understand BEFORE making any purchase or sale decisions. Our weekly recommendation articles provide risk ratings for ALL mREIT and BDC stocks I currently cover. The following link is to our latest weekly analysis:

Scott Kennedy's Weekly Series: mREIT And BDC Recommendations (And Price Targets) As Of 6/5/2020

Final Note: The analysis performed above does not provide "every" catalyst/factor to consider when choosing a BDC investment. However, I believe this analysis is a good starting point to begin a discussion on the topic. Additional metrics will be analyzed in PART 2 of this article. PART 2 will take a look at ARCC's past and current dividend rates, yields, and other similar metrics and compare the results to fourteen BDC peers. Several of these metrics have a direct impact on future operations/results as events unfold.

Each investor's BUY, SELL, or HOLD decision is based on one's risk tolerance, time horizon, and dividend income goals. My personal recommendation will not fit each reader's current investing strategy. The factual information provided within this article is intended to help assist readers when it comes to investing strategies/decisions.

Current/Recent BDC Sector Stock Disclosures

On 10/12/2018, I initiated a position in ARCC at a weighted average purchase price of $16.40 per share. On 12/10/2018, 12/18/2018, 12/21/2018, and 4/8/2020, I increased my position in ARCC at a weighted average purchase price of $16.195, $15.305, $14.924, and $11.345 per share, respectively. When combined, my ARCC position has a weighted average purchase price of $13.256 per share. This weighted average per share price excludes all dividends received/reinvested.

On 9/6/2017, I re-entered a position in PSEC at a weighted average purchase price of $6.765 per share. On 10/16/2017 and 11/6/2017, I increased my position in PSEC at a weighted average purchase price of $6.285 and $5.66 per share, respectively. When combined, my PSEC position had a weighted average purchase price of $6.077 per share. This weighted average per share price excluded all dividends received/reinvested. On 6/8/2020, I sold my entire PSEC position at a weighted average sales price of $5.761 per share as my price target, at the time, of $5.75 per share was surpassed. This calculates to a weighted average realized loss and total return of (5.2%) and 26.1%, respectively. I held this weighted average position for approximately 31 months. This calculates to an annualized total return of 10.2%.

On 6/5/2018, I initiated a position in TSLX at a weighted average purchase price of $18.502 per share. On 6/14/2018, I increased my position in TSLX at a weighted average purchase price of $17.855 per share. My second purchase was approximately double the monetary amount of my initial purchase. When combined, my TSLX position had a weighted average purchase price of $18.071 per share. This weighted average per share price excluded all dividends received/reinvested. On 11/12/2019, I sold my entire TSLX position at a weighted average sales price of $21.875 per share. This calculates to a weighted average realized gain and total return of 21.1% and 35.7%, respectively. I held this weighted average position for approximately 17 months.

On 4/17/2019, I re-entered a position in TSLX at a weighted average purchase price of $15.43 per share. On 6/5/2020, I sold my entire TSLX position at a weighted average sales price of $19.385 per share as my price target, at the time, of $19.30 per share was surpassed. This calculates to a weighted average realized gain and total return of 25.6%. I held this position for approximately 1.5 months.

On 10/12/2018, I initiated a position in SLRC at a weighted average purchase price of $20.655 per share. On 12/18/2018 and 2/24/2020, I increased my position in SLRC at a weighted average purchase price of $19.66 and $19.498 per share, respectively. When combined, my SLRC position has a weighted average purchase price of $19.744 per share. This weighted average per share price excludes all dividends received/reinvested.

On 3/13/2019, I initiated a position in GAIN at a weighted average purchase price of $11.625 per share. On 6/6/2019, I increased my position in GAIN at a weighted average purchase price of $11.085 per share. When combined, my GAIN position had a weighted average purchase price of $11.257 per share. This weighted average per share price excluded all dividends received/reinvested. On 11/11/2019, I sold my entire GAIN position at a weighted average sales price of $13.78 per share. This calculates to a weighted average realized gain and total return of 22.4% and 28.3%, respectively. I held this weighted average position for approximately 7 months.

On 10/2/2019, I re-entered a position in NEWT at a weighted average purchase price of $21.635 per share. On 10/7/2019, 2/5/2020, 2/24/2020, 2/27/2020, and 4/8/2020, I increased my position in NEWT at a weighted average purchase price of $20.95, $21.125, $20.615, $18.565, and $12.475 per share, respectively. When combined, my NEWT position has a weighted average purchase price of $16.096 per share. This weighted average per share price excludes all dividends received/reinvested.

On 4/16/2020 and 4/17/2020, I re-entered a position in GAIN's Series D (GAINM) and Series E (GAINL) preferred stock at a weighted average purchase price of $23.05 and $22.68 per share, respectively. These weighted average per share prices exclude all dividends received/reinvested.

Final Note: All trades/investments I have performed over the past several years have been disclosed to readers in "real time" (that day at the latest) via either the StockTalks feature of Seeking Alpha or, more recently, the "live chat" feature of the Marketplace Service the REIT Forum (which cannot be changed/altered). Through these resources, readers can look up all my prior disclosures (buys/sells) regarding all companies I cover here at Seeking Alpha (see my profile page for a list of all stocks covered). Through StockTalk disclosures and/or the live chat feature of the REIT Forum, at the end of May 2020 I had an unrealized/realized gain "success rate" of 83.6% and a total return (includes dividends received) success rate of 89.1% out of 55 total past and present positions (updated monthly; multiple purchases/sales in one stock count as one overall position until fully closed out). I have only 1 realized "total loss" in any of my past/sold positions. Both percentages experienced another minor-modest increase, when compared to April 2020, as a direct result of the recent partial market rally to counter previous fears/panic surrounding the COVID-19 pandemic. In addition, in early April 2020, I initiated several new positions and increased several existing positions at attractive-very attractive prices versus pricing as of 5/31/2020. I encourage other Seeking Alpha contributors to provide real time buy and sell updates for their readers which would ultimately lead to greater transparency/credibility. Starting in January 2020, I have transitioned all my real-time purchase and sale disclosures solely to members of the REIT Forum. All applicable public articles will still have my sector purchase and sale disclosures (just not in real time). Please disregard any minor "cosmetic" typos if/when applicable.

Analyst’s Disclosure: I am/we are long ARCC, GAINL, GAINM, NEWT, SLRC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I currently have no position in AINV, BDCS, BIZD, BLK, FSK, GAIN, GBDC, MAIN, OCSI, OCSL, ORCC, PFLT, PSEC, TCPC, or TSLX. Colorado Wealth Management currently is long NEWT.