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On Thursday, Keefe, Bruyette & Woods analyst Jade Rahmani adjusted the price target on Ares Commercial (NYSE:ACRE) shares, bringing it down to $5.50 from the previous $6.00, while keeping a Market Perform rating on the stock. Rahmani’s decision followed the company’s fourth-quarter performance, leading to revised forward estimates due to a combination of lower originations and higher repayments.
Rahmani provided insights into the expected financial performance of Ares Commercial, noting a distributable earnings (DE) estimate of $0.12-$0.14 per quarter. This projection is based on the anticipated portfolio run-off, which is expected to continue until midyear. The analysis highlighted the management’s focus on addressing high-risk loans and enhancing liquidity as immediate priorities. InvestingPro analysis shows strong liquidity with a current ratio of 3.94, indicating the company’s ability to meet its short-term obligations.
Despite the price target reduction, Rahmani pointed out that Ares Commercial’s shares appear attractive trading at 0.54 times book value, which is below the 0.76 times peer average. However, the analyst also observed that the 11.2% yield on the company’s reduced dividend aligns with that of several peers in the industry.
The report emphasized the ongoing challenges within the commercial real estate (CRE) credit sector, which played a significant role in maintaining the Market Perform rating for Ares Commercial. Rahmani’s commentary suggests a cautious approach to the stock, reflecting broader concerns in the CRE credit market.
In other recent news, Ares Commercial Real Estate (ACRE) reported a net loss for Q4 2024, despite surpassing revenue expectations. The company posted an earnings per share (EPS) of -$0.20, which fell short of the forecasted $0.06. However, Ares reported a revenue of $17.51 million, exceeding the forecast of $16.36 million. Additionally, the company reported a Q4 2024 net loss of $10.7 million and reduced its net debt to equity ratio by 16% year-over-year. Despite these developments, the company’s stock experienced a decline, reflecting investor concerns over the earnings miss and broader financial performance. Looking ahead, Ares aims to further reduce risk-rated loans and improve its balance sheet, anticipating potential CLO issuances between $500 million to $1 billion in 2025. These recent developments highlight the company’s continued efforts to improve its financial standing and mitigate risks.
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