Ares Capital (ARCC) Is Considered a Good Investment by Brokers: Is That True?

Core Viewpoint - The article discusses the reliability of Wall Street analysts' recommendations, particularly focusing on Ares Capital (ARCC), and emphasizes the importance of using these recommendations in conjunction with other research tools like the Zacks Rank [1][4]. Summary by Sections Ares Capital Recommendations - Ares Capital has an average brokerage recommendation (ABR) of 1.46, indicating a consensus between Strong Buy and Buy, based on 13 brokerage firms [2]. - Out of the 13 recommendations, nine are Strong Buy and two are Buy, which account for 69.2% and 15.4% of all recommendations respectively [2]. Brokerage Recommendation Trends - While the ABR suggests buying Ares Capital, relying solely on this information for investment decisions may not be wise, as studies show limited success of brokerage recommendations in predicting stock price increases [4]. - Brokerage firms often exhibit a positive bias in their ratings due to vested interests, leading to a disproportionate number of favorable ratings compared to negative ones [5][9]. Zacks Rank vs. ABR - The Zacks Rank, which classifies stocks from Strong Buy to Strong Sell, is presented as a more reliable indicator of near-term price performance compared to ABR [7]. - The Zacks Rank is based on earnings estimate revisions, which have a strong correlation with stock price movements, while ABR is based solely on brokerage recommendations and may not be timely [10][11]. Current Earnings Estimates for Ares Capital - The Zacks Consensus Estimate for Ares Capital remains unchanged at $2.19 for the current year, indicating steady analyst views on the company's earnings prospects [12]. - Due to the unchanged consensus estimate and other factors, Ares Capital holds a Zacks Rank of 3 (Hold), suggesting caution despite the Buy-equivalent ABR [13].