Ares Management Q3 Earnings: Is NYSE:ARES Manipulating Earnings?

in EARNINGS/INVESTING IDEAS by

Ares Management Corporation (NYSE:ARES) is scheduled to report Q3 earnings results before markets open for trading on October 28, 2020.

The company is expected to report earnings of $0.43/share on revenue of $364 million. The consensus earnings per share (EPS) of $0.43/share is based on a poll of 12 analysts and represents a growth in eps of 26.9% over the same quarter last year, when the company reported earnings of $0.34/share.

The revenue forecast of $364 million based on a poll of 4 analysts implies a year-over-year (YoY) decline in revenue of −22.0%. Last year the company reported $466.5 million in revenue for the quarter.

Expected to report EPS growth of 26.9% for Q3, 2020
Metric Expected Prior Year YoY Change
Revenue $364.04 $466.49 −22.0%
EPS $0.43 $0.34 26.9%

Earnings Call Trends

Historically, management has exceeded analyst expectations 4 out of the last 8 tracked quarters, and missed expectations 4 quarters.

What are your expectations from Ares Management Corporation for earnings this quarter? Let us know in the comments!

Analyst Expected vs. Reported EPS
Quarter Expected Reported Surprise Result
Q2, 2020 $0.38 $0.39 3.5% Beat
Q1, 2020 $0.42 $0.45 7.8% Beat
Q4, 2019 $0.51 $0.67 32.5% Beat
Q3, 2019 $0.37 $0.34 −7.5% Missed
Q2, 2019 $0.37 $0.32 −13.5% Missed
Q1, 2019 $0.37 $0.35 −6.6% Missed
Q4, 2018 $0.33 $0.41 25.2% Beat
Q3, 2018 $0.34 $0.30 −12.0% Missed

In the following table, we summarize the company’s stock price movements after earnings releases. The “Price Day Prior” column shows the closing stock price on the day before the earnings report, and the “Price Next Day” column shows the stock price at the end of the trading day after the earnings report. After the last earnings report for the period ending June 30, 2020, the stock price did not react much to the update.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
August 5, 2020 $40.41 $40.27 −0.3% Decline
May 6, 2020 $32.50 $35.01 7.7% Increase
February 13, 2020 $40.63 $40.01 −1.5% Decline
October 31, 2019 $29.73 $31.37 5.5% Increase

The other question to consider is one of earnings manipulation. There is a lot of pressure on management each quarter to deliver on earnings expectations. The Beneish M-Score is a statistical model that provides some insight into whether the company might be manipulating earnings. With a Beneish M-Score of −1.42, the model suggests that the company is likely an earnings manipulator. A value of −1.42 implies a 7.7% chance of earnings manipulation.

Fundamentals And Technical Analysis

Ares Management Corporation is currently trading at $43.39/share, down −3.2% for the day. The company is trading at approximately 95.5% of its 52-week high of $45.44/share. The company’s stock price is up 7.7% since the last earnings report and down −2.3% over the previous week. The company’s 14 Day Relative Price Index (RSI) of 55.55 suggests the company is trading in technically neutral territory. The RSI is considered overbought when above 70 and oversold when below 30.


NYSE:ARES Stock Price Chart
Source: Finbox

The current share price implies a price-to-earnings (P/E) multiple of 88.31 and a forward P/E multiple of 25.59.

Ares Management Corporation’s current share price also implies a price-to-book (P/B) multiple of 16.79. The following table summarizes some other key fundamental ratios:

Data as of October 26, 2020
Metric Value
Last Reported Fiscal Period Key FY2020.Q2
Period End Date June 30, 2020
Stock Price (Current) $43.39
P/E Ratio 88.3x
P/E Ratio (Fwd) 25.6x
PEG Ratio −3.6
Total Debt / Total Capital 44.8%
Levered Free Cash Flow -$961.8 million
EV / EBITDA 20.3x

Finbox

Ares Management Corporation is a mid-cap stock with a market capitalization of $5.872 billion and a total enterprise value of $16.285 billion. The company operates in the Financials sector and the Capital Markets industry.

Ares Management Corporation operates as an alternative asset manager in the United States, Europe, and Asia. The company’s Tradable Credit Group segment manages various types of investment funds, such as commingled and separately managed accounts for institutional investors, and publicly traded vehicles and sub-advised funds for retail investors in the tradable and non-investment grade corporate credit markets. Its Direct Lending Group segment provides financing solutions to small-to-medium sized companies. The company’s Private Equity Group segment focuses on majority or shared-control investments primarily in under-capitalized companies. Its Real Estate Group segment invests in new developments and the repositioning of assets, with a focus on control or majority-control investments; and originates and invests in a range of self-originated financing opportunities for middle-market owners and operators of commercial real estate. The firm was previously known as Ares Management, L.P. Ares Management Corporation was founded in 1997 and is headquartered in Los Angeles, California with additional offices in the United States, Europe and Asia. Ares Management GP LLC is the general partner of the company.

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