Is Ares Capital (ARCC) a Sell or a Hold in 2026? A Deep Dive into Earnings Revisions and Valuation Pressures

Ares Capital (ARCC), a key player in the private credit market, has drawn mixed signals from analysts as 2026 approaches. With a Zacks Rank of #3 (Hold) as of December 2025, the stock is neither expected to outperform nor underperform the broader market. However, a closer examination of earnings estimate revisions, revenue growth forecasts, and valuation metrics reveals a nuanced picture that warrants caution for income-focused investors.

Earnings Revisions: A Cautionary Trend

The consensus earnings estimate for ARCC in 2026 stands at $1.95 per share, reflecting a projected decline of -2.2% compared to the prior year. This downward revision, though modest, signals potential headwinds in translating revenue growth into profitability. While the company's revenue is forecasted to rise by 4.7% in 2026 to $3.2 billion, the earnings contraction suggests margin pressures or operational inefficiencies. For instance, the next-year EPS forecast has dipped slightly from $2.19 to $2.17, a -0.91% decline. Such trends underscore the importance of monitoring how ARCC navigates macroeconomic factors like interest rate volatility and credit risk in its portfolio.

Revenue Growth: A Mixed Bag

ARCC's revenue trajectory appears more resilient. The consensus estimates project $3.06 billion in revenue for the current fiscal year-a 2.2% year-over-year increase-and $3.2 billion for 2026, reflecting a 4.7% growth rate. These figures highlight the company's ability to scale its operations, particularly in a private credit market that remains attractive amid low-yield environments. However, the disconnect between revenue growth and earnings stability raises questions about the sustainability of its business model. If rising costs or tighter credit conditions erode margins, the projected revenue gains may not translate into meaningful shareholder value.

Valuation Pressures: A Premium with Risks

ARCC's valuation metrics further complicate the investment case. The stock trades at a Forward P/E ratio of 10.01, significantly above the 8.26 industry average for business development companies (BDCs). This premium pricing, while partly justified by its diversified credit portfolio, becomes riskier in the context of a flat or declining earnings outlook. Ares Capital's average price target of $22.65, based on 13 analyst forecasts, implies limited upside potential relative to its current price. For income-focused investors, this suggests that the stock's yield may not compensate for the valuation overhang, particularly if earnings revisions turn more negative.

Strategic Implications for Investors

The Zacks Rank of #3 (Hold) aligns with the mixed signals from earnings and valuation data. While ARCC's revenue growth and market positioning in private credit offer long-term appeal, the near-term risks-namely, earnings contraction and a premium valuation-tilt the balance toward caution. Income-focused investors should consider holding the stock rather than buying it, pending clearer signs of margin stabilization or a re-rating of its valuation. Additionally, the company's ability to access high-quality investment opportunities will be critical in 2026, as highlighted by its strategic focus on expanding its credit platform.

Conclusion

Ares Capital's investment profile in 2026 is best characterized by a tug-of-war between its revenue growth potential and earnings pressures. With a Zacks Rank of Hold and a Forward P/E that outpaces peers, the stock appears to be in a holding pattern. For now, strategic reevaluation-rather than aggressive buying-seems prudent. Investors should keep a close eye on quarterly earnings revisions and management's ability to navigate macroeconomic headwinds, as these factors will ultimately determine whether ARCC transitions from a "Hold" to a "Buy" in the coming year.