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Smart Investors Are Holding Acadia Healthcare Stock Now: Here's Why
Zacks
Acadia Healthcare Company, Inc. ACHC is aided by growing patient volumes, continued optimization, efficiency enhancement initiatives, an extensive healthcare network resulting from numerous joint ventures (JVs) and other expansion initiatives, as well as improved cash reserves.
Acadia Healthcare — with a market cap of $7.2 billion — is a behavioral healthcare services company. Acadia Healthcare currently carries a Zacks Rank #3 (Hold). The stock has gained 13.9% in the past three months compared with the industry’s growth of 16.1%.
Let’s delve deeper.
Key Drivers
Acadia Healthcare’s U.S. operations are bolstered by strong patient volumes and improved operational efficiencies, thereby driving its revenue growth. Newly added facilities are expected to contribute to volume growth and margin expansion in the second half of 2024. Same-store patient day growth in mid-single digits in the second half of 2024 is likely to aid results. Programs like patient monitoring technology and electronic medical records are expected to improve efficiency in the future.
The ongoing prevalence of mental health issues in the United States is expected to sustain the demand for behavioral healthcare services, which should continue to benefit the company's revenues. Management projects 2024 revenues between $3.18 billion and $3.225 billion, the midpoint of which represents a 9.3% increase from 2023.
Acadia Healthcare is executing a solid growth strategy that includes acquisitions of healthcare facilities, capacity expansions at existing facilities and JVs with leading U.S. health systems. It expects to add more than 400 beds to existing facilities in 2024. It also plans to open a maximum of 14 comprehensive treatment centers this year.
JVs allow Acadia Healthcare to open new facilities and extend its reach across the country. The company had 21 JVs in place as of June 30, 2024. The company also does not shy away from closing underperforming facilities. It closed two facilities in the second quarter of 2024 and continues to evaluate its portfolio of healthcare facilities.
Acadia Healthcare expects to expand the use of Partial hospitalization programs and Intensive outpatient programs. These facilities provide clinical benefits for patients stepping down from Specialty or Acute care. Improved clinical outcomes, coupled with low capital requirements, make this area of care an attractive opportunity for expansion.
As of June 30, 2024, Acadia Healthcare operated 258 behavioral healthcare facilities across 38 states and Puerto Rico. The company maintains a strong financial position, with sufficient cash reserves to cover short-term debt obligations and undertake business investments. It expects operating cash flows between $525 million and $575 million, up from $462 million in 2023. It also had $371.5 million available under its $600 million revolving credit facility as of June 30, 2024.
ACHC Earnings Estimates
The Zacks Consensus Estimate for Acadia Healthcare’s 2024 earnings is pegged at $3.51 per share, indicating an improvement of 2% from the prior-year reading. The consensus estimate for revenues is pegged at $3.2 billion, implying a 9.5% increase from the prior-year actual. The estimate remained stable over the past week. ACHC’s bottom line surpassed estimates in each of the trailing four quarters, the average surprise being 4.52%. This is depicted in the figure below.
Acadia Healthcare Company, Inc. Price and EPS Surprise
Acadia Healthcare Company, Inc. price-eps-surprise | Acadia Healthcare Company, Inc. Quote
Risks
Despite the upside potential, there are a few factors that investors should keep an eye on.
Acadia Healthcare continues to witness an escalating expense level as a result of higher salaries, wages and benefits, professional fees and other operating costs. Higher expenses can put pressure on the company’s margins in the days ahead.
The company's debt-laden balance sheet creates financial risk. As of June 30, 2024, it held a total debt of $1.8 billion. Elevated debt levels induce an increase in interest expenses, which escalated 37.8% year over year in the first half of 2024.
ACHC's return on equity of 11.4% is significantly lower than the industry average. This reflects the company's relative inefficiency in utilizing shareholders’ funds to generate profits.
Key Picks
Some better-ranked stocks in the Medical space are LeMaitre Vascular, Inc. LMAT, Avanos Medical, Inc. AVNS and The Ensign Group, Inc. ENSG. While LeMaitre Vascular sports a Zacks Rank #1 (Strong Buy), Avanos Medical and Ensign Group carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
LeMaitre Vascular’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 8.87%. The Zacks Consensus Estimate for LMAT’s 2024 earnings implies an improvement of 37%, while the same for revenues indicates growth of 13% from the respective 2023 figures.
Avanos Medical’s earnings surpassed estimates in three of the last four quarters and missed the mark once, the average surprise being 5.69%. The Zacks Consensus Estimate for AVNS’ 2024 earnings indicates a 35% rise from the 2023 figure.
Ensign Group’s earnings outpaced estimates in each of the trailing four quarters, the average surprise being 1.40%. The Zacks Consensus Estimate for ENSG’s 2024 earnings indicates a 14.1% rise, while the same for revenues implies an improvement of 13.1% from the respective 2023 reported figures.
Zacks Investment Research
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