Acadia Healthcare Company, Inc. (ACHC Quick QuoteACHC - Free Report) is well-poised to grow on the back of robust volumes and operational improvement in the U.S. segment. Streamlining portfolio in order to boost profits is also commendable.

Acadia Healthcare — with a market cap of $6.1 billion — provides behavioral health care services in the United States and the U.K. The Franklin, TN-based firm is primarily involved in developing inpatient psychiatric facilities, outpatient behavioral healthcare facilities, residential treatment centers, substance abuse facilities and others.

The company beat earnings estimates thrice in the last four quarters and met once, the average surprise being 20.2%.

Courtesy of solid prospects, this Zacks Rank #3 (Hold) stock is worth holding on to at the moment.

Major Positives

The company’s revenues witnessed a CAGR of 3.1% in the 2015-2020 period owing to strong organic and inorganic growth. Even though revenues were affected by the coronavirus outbreak initially, a strong performing U.S. business drove the top line. For 2021, revenues are estimated between $2.295 billion and $2.315 billion, the mid-point of which indicates growth of 10% from the 2020 reported figure. Acadia Healthcare’s growth strategy, which includes network expansion through addition of beds, setting up of wholly-owned de novo facilities by strategic joint ventures and acquisitions, bodes well for the top line.

Acadia Healthcare has been emphasizing on buyouts for expedited growth. This strategy helped the company to add facilities, beds and hospitals to its network and contributed to the top line. The company remains actively engaged with its acquisition pipeline and expects buyout and joint venture activity to be heavily skewed toward acute facilities in the domestic market. In fact, the company added 104 beds to its existing operations in the third quarter.

Acadia Healthcare is also actively pursuing joint ventures (JVs) with renowned healthcare systems, which is helping the company to expand its capabilities through bed additions. The healthcare provider has a robust pipeline of JV projects, which are yet to be completed. This makes the company optimistic about the year 2022. The year 2022 is likely to be its strongest year with respect to JVs as four or five facilities are expected to commence operations. This month, it entered into a JV with California’s renowned integrated healthcare system, Scripps Health, for operating an inpatient behavioral health hospital in the Eastlake community of Chula Vista. The hospital will house 120 beds and a speciality unit, which will cater to the behavioral health treatment of active-duty military and veterans.

Its strategic moves to streamline portfolio in order to boost profits are also praiseworthy. It separated the underperforming U.K. operations this year, which was negatively impacting growth. The move enables Acadia Healthcare to improve profitability and achieve growth by focusing on more profitable business.

Key Concerns

However, there are a few factors that are impeding the growth of the stock lately.

ACHC expects 2021 adjusted earnings per share within $2.51-$2.59 down from the earlier view of $2.50-$2.70. Shrinking bottom line can be worrisome. Also, the company’s high leverage remains a cause of concern for investors. Its long-term debt of $1.44 billion is way higher than cash and cash equivalents of $196.3 million, which highlights the company’s weak solvency position. This can affect its financial flexibility. Nevertheless, we believe that a systematic and strategic plan of action will drive its long-term growth.

Stocks to Consider

Some better-ranked players in the medical space include Co-Diagnostics, Inc. (CODX Quick QuoteCODX - Free Report) , Doximity, Inc. (DOCS Quick QuoteDOCS - Free Report) and Harrow Health, Inc. (HROW Quick QuoteHROW - Free Report) , each having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Salt Lake City, UT-based Co-Diagnostics’ bottom line for 2021 has witnessed one upward estimate revision in the past 30 days and no movement in the opposite direction. During this time period, its earnings estimates have risen 17.9%. CODX beat earnings estimates thrice in the last four quarters and missed once, the average surprise being 35.6%. The molecular diagnostics company provides a wide range of testing services to customers. Its joint venture CoSara in India is likely to have boosted its addressable market size. Also, Co-Diagnostics’ Logix Smart™ ABC test received a green signal from the Mexican watchdogs. Deals like these will keep strengthening its client base around the world.

Headquartered in San Francisco, CA, Doximity’s bottom line for 2021 has witnessed four upward estimate revisions in the past 30 days and no movement in the opposite direction. During this time period, its earnings estimates have risen 39%. DOCS’ cloud-based digital platform for medical professionals is expected to keep growing in the coming days. As the coordinated patient care and virtual patient visits are expected to increase, backed by improved technologies, demand for Doximity’s platform will keep rising.

Based in San Diego, CA, Harrow Health’s bottom line for 2021 is expected to soar 346.2% year over year. It has witnessed one upward estimate revision in the past 30 days and no movement in the opposite direction. HROW beat earnings estimates thrice in the past four quarters and missed once, the average surprise being 38%. It is an ophthalmic-focused healthcare firm. Its recent acquisitions of ophthalmic surgical drug candidates from Sintetica and Wakamoto Pharmaceutical are major positives. Moves like these will likely bolster Harrow Health’s commercial success in the U.S. and Canadian markets.

In the past six months, stocks of Co-Diagnostics, Doximity and Harrow Health rose 15.3%, 25.8% and 8.6%, respectively.