Here's Why You Should Retain Acadia (ACHC) in Your Portfolio


Acadia Healthcare’s (ACHC - Free Report) growing top line, accretive acquisitions, strong performing U.S. business, opportunistic joint ventures and its history of streamlining underperforming businesses make it worth retaining in one’s portfolio.Also, its favorable growth estimates are confidence boosters for investors.

The company is a leader in behavioral health space with operations spread across the United States in 39 states with a diversified patient and payor base. ACHC is positioned to serve the unmet needs of patients and provide quality services to them.

Zacks Rank & Price Performance

ACHC currently carries a Zacks Rank #3 (Hold). In the past year, the stock has gained 7.5%, against the industry’s decline of 13.7%.

Optimistic Growth Projections

The Zacks Consensus Estimate for ACHC’s 2023 earnings is pegged at $3.30, indicating a 9.6% increase from the year-ago reported figure of $3.01. The same for ACHC’s 2023 sales is pegged at $2.9 billion, indicating a 9.5% increase from the year-ago reported figure of $2.6 billion.

Growth Drivers

Acadia Healthcare is a leader in the pure-play behavioral health space in the United States, serving 75 thousand patients daily across their four service lines. It aims to improve operating results by expanding its networks, providing high-quality services and engaging in a marketing strategy to attract new patients. It also keeps an eye on recognizing opportunistic acquisitions and joint ventures to expand its current locations and develop new services.

ACHC has widespread facilities across the United States, with 250 facilities in summation.As a leader in a highly fragmented industry, it is expected to take advantage of numerous strategies due to its increased size and scale, positioning it well for success.

ACHC’s increasing top line, strong performing U.S. business driven by robust volumes and continuous expansion through the addition of beds, de-novo facilities, acquisitions and joint ventures bodes well for its long-term growth. It added 290 beds to its existing facilities in 2022 and more ambitiously aims to add 300 beds in 2023.

Acadia Healthcare’s business is well diversified across 39 states in the United States. Its patient, payor and geographic diversity diminishes the risk related to any single facility. There is no single facility contributing more than 4% to ACHS’s revenues, and no state contributing more than 14% to the same in 2022.

The company believes that the market for behavioral services is set to grow in the future as people become more aware of mental health and substance abuse conditions and treatment options. The complex mental health and substance use market is a $100 billion market, and Acadia is focused on meeting the unmet needs of more than 30 million Americans receiving no treatment for their mental illness and integrating the same with physical health. The estimated annual growth rate for the mental health market stands at 6-9% from 2021-2026.

Adding to the positives is ACHS’s strong cash flow position to execute continued investments aiding expansion. Its operating activities generated $380.6 million in 2022, higher than the year-ago figure of $374.2 million. Its costs required for procurement and replacement of expensive medical equipment accounted for only 2% of its total revenues in 2022, significantly lower than its other facility-based healthcare counterparts.

ACHC envisions achieving 10-12% annual EBITDA growth from 2024-2028 on the back of continued expansions, stronger foundational improvements in technology, and a focus on substance use disorder.

Key Concerns

There are a few factors that are impeding the stock’s growth lately.

ACHC’s operating expenses rose 9.7% in 2022, mainly due to higher personnel expenses and other operating expenses. Rising costs can affect its margins.

The company’s high leverage remains a concern as its long-term debt at 2022-end was way higher than cash and cash equivalents. In order to service its debts and refinance the same, the company might have to cut its capital expenditures in the future. Nevertheless, we believe that a systematic and strategic plan of action will drive growth in the long term.

Stocks to Consider

Some better-ranked stocks from the broader medical space are Amphastar Pharmaceuticals (AMPH - Free Report) , BioRad Laboratories (BIO - Free Report) and Catalyst Pharmaceuticals (CPRX - Free Report) . Each of these companies sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Amphastar Pharmaceutical’s 2023 earnings indicates 3.1% year-over-year growth. In the past year, AMPH’s stock has gained 8.8%.

The Zacks Consensus Estimate for AMPH’s 2023 earnings has moved 12.8% north in the past 30 days.

The Zacks Consensus Estimate for BioRad Laboratories’ 2023 earnings indicates 10.3% year-over-year growth. The Zacks Consensus Estimate for BIO’s 2023 earnings has moved 5.9% north in the past 30 days.

The Zacks Consensus Estimate for Catalyst Pharmaceuticals 2023 earnings indicates 54.5% year-over-year growth. The Zacks Consensus Estimate for CPRX’s 2023 earnings has moved 2.7% north in the past 60 days. In the past year, CPRX has gained 88.2%.

5 Stocks Set to Double

Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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