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Acadia Healthcare (ACHC) Gets Rating Upgrade Post U.K. Unit Sale

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Acadia Healthcare Company, Inc. (ACHC - Free Report) got a number of its ratings upgraded by Moody’s following the company’s sale of its UK business.

Among the ratings that received an upgrade were its Corporate Family Rating (CFR) up to Ba3 from B2; Probability of Default Rating to Ba3-PD from B2-PD, RUR-Up senior secured ratings to Ba1 from Ba2 RUR-Up and senior unsecured ratings to B1 from B3 RUR-Up and Speculative Grade Liquidity Rating to SGL-2 from SGL-1.

The outlook for these ratings, which were previously under review, was also improved to stable.

This positive move by the rating agency followed the company’s balance sheet deleveraging, which will strengthen its capital structure as well as its credit profile.

The rating giant also acknowledge that the company after the sale of its underperforming U.K. operations in January this year will operate with more conservative financial policies going forward. Also, it is of the opinion that despite the fact that the company will loose on economies of scale and geographical diversification provided by the U.K operations, its extension into U.S business will make up for the loss.

Moody’s believes that the company’s operating performance will get better and its service business provides an encouraging business diversification.
The rating firm also expects negative free cash flow over the next year as it accelerates capital investment in its operations and to that end, it lowered the company’s Speculative Grade Liquidity Rating to SGL-2 from SGL-1.

However, this concern to some extent is pacified by the rating agency’s expectation for the company, which projects it to maintain a healthy cash balance and a significant access to its revolving credit facility.

The company’s CFR is constrained by certain factors, including Acadia's reliance on government reimbursement from Medicare and Medicaid, and risks associated with the rapid pace of growth through acquisitions, opening of new facilities and the addition of beds in its existing facilities. In case of a rise in U.S. coronavirus cases and hospitalizations, Moody's expects these headwinds to temporarily reduce patient volumes at Acadia's behavioral health facilities.  

This rating upgrade bodes well for the company as it instills investor confidence in the stock.

The stock has skyrocketed 99.4% in the past six months’ compared with the industry’s growth of 58.5%.

Other stocks in the same space, such as Community Health Systems Inc. (CYH - Free Report) and HCA Healthcare Inc. (HCA - Free Report) have also gained 212.2% and 62.1%, respectively, whereas Avita Medical Ltd. (RCEL - Free Report) has lost 15.5% over the same time frame.

Acadia currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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