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Should You Retain Acadia Healthcare Stock in Your Portfolio?
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The Acadia Healthcare Company, Inc. (ACHC - Free Report) stock gained momentum in the first quarter of 2017. Year to date, the shares have appreciated roughly 33%, outperforming the Zacks Medical-Hospitals industry’s increase of only 19%. This upside was driven by a number of positives like robust inorganic growth, growing revenues and strong fundamentals.
Acadia Healthcare has been witnessing steady growth in revenues over the past few years, led by both organic and inorganic strategies. Revenues have grown at a CAGR of 67% in 2011–2016. Both organic and inorganic strategies of the company have significantly contributed to the top-line growth. For the year 2017, the company expects revenues in the range of $2.85–$2.9 billion.
We note that the company has been undertaking mergers, acquisitions and strategic alliances to boost growth. These efforts not only add to its top line but also boost its asset base. In fact, the company is likely to spend $57 million in cash by year-end 2017 for new bed development and acquisition activities. It also intends to achieve full availability under its $500 million revolving credit facility. The company plans to add more than 800 new beds during 2017, primarily to existing acute facilities, through two acute de novo facilities that are likely to be opened in the second half of 2017.
Moreover, the company’s diversified business mix helps it to mitigate the potential risks associated with any single operation. The company was largely benefitted by Medicaid expansion during the Obama regime. Also, Acadia Healthcare witnessed bottom-line growth at a CAGR of 39.34% during 2012–2016. The company expects diluted earnings per share of $2.40–$2.50 in 2017.
The company’s organic and inorganic growth efforts are supported by its solid cash position, which has been improving since 2012. Continuing the trend, cash flow from operations surged 54% year over year to $371.7 million in 2016.
However, the company faces a number of headwinds. Acadia Healthcare’s frequent acquisitions have been draining its earnings owing to integration risk-related expenses. This has also been impacting its balance sheet due to a high concentration of goodwill and intangible assets, which accounted for almost 46% of its total assets as of Dec 31, 2016.
The company’s growing operational exposure across the globe exposes it to foreign currency rate fluctuations. This is likely to have an adverse impact on both its top and bottom lines. The U.K. operations, which presently accounts for more than 45% of its revenues, raises concerns owing to the same reason.
In addition, increase in long-term debt has been escalating interest expenses, in turn, weighing on the company’s profitability. At the end of 2016, long-term debt increased 45% year over year to $3.2 billion. Its debt-to-capital ratio remains below 55%.
The stock also seems to be overvalued. Its Price to Sales (PS) ratio of 1.29 is higher than the industry average of 0.76.
Zacks Rank and Stocks to Consider
Acadia Healthcare carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the medical sector include UnitedHealth Group, Inc. (UNH - Free Report) , Inogen Inc. (INGN - Free Report) and Infinity Pharmaceuticals, Inc. . While Inogen and Infinity sport a Zacks Rank #1 (Strong Buy), UnitedHealth holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Inogen posted positive surprises in three of the last four quarters with an average positive surprise of 49.08%.
Infinity delivered positive surprises in the trailing four quarters with an average beat of 28.38%.
UnitedHealth delivered positive surprises in last four quarters with an average beat of 3.80%.
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Should You Retain Acadia Healthcare Stock in Your Portfolio?
The Acadia Healthcare Company, Inc. (ACHC - Free Report) stock gained momentum in the first quarter of 2017. Year to date, the shares have appreciated roughly 33%, outperforming the Zacks Medical-Hospitals industry’s increase of only 19%. This upside was driven by a number of positives like robust inorganic growth, growing revenues and strong fundamentals.
Acadia Healthcare has been witnessing steady growth in revenues over the past few years, led by both organic and inorganic strategies. Revenues have grown at a CAGR of 67% in 2011–2016. Both organic and inorganic strategies of the company have significantly contributed to the top-line growth. For the year 2017, the company expects revenues in the range of $2.85–$2.9 billion.
We note that the company has been undertaking mergers, acquisitions and strategic alliances to boost growth. These efforts not only add to its top line but also boost its asset base. In fact, the company is likely to spend $57 million in cash by year-end 2017 for new bed development and acquisition activities. It also intends to achieve full availability under its $500 million revolving credit facility. The company plans to add more than 800 new beds during 2017, primarily to existing acute facilities, through two acute de novo facilities that are likely to be opened in the second half of 2017.
Moreover, the company’s diversified business mix helps it to mitigate the potential risks associated with any single operation. The company was largely benefitted by Medicaid expansion during the Obama regime. Also, Acadia Healthcare witnessed bottom-line growth at a CAGR of 39.34% during 2012–2016. The company expects diluted earnings per share of $2.40–$2.50 in 2017.
The company’s organic and inorganic growth efforts are supported by its solid cash position, which has been improving since 2012. Continuing the trend, cash flow from operations surged 54% year over year to $371.7 million in 2016.
However, the company faces a number of headwinds. Acadia Healthcare’s frequent acquisitions have been draining its earnings owing to integration risk-related expenses. This has also been impacting its balance sheet due to a high concentration of goodwill and intangible assets, which accounted for almost 46% of its total assets as of Dec 31, 2016.
The company’s growing operational exposure across the globe exposes it to foreign currency rate fluctuations. This is likely to have an adverse impact on both its top and bottom lines. The U.K. operations, which presently accounts for more than 45% of its revenues, raises concerns owing to the same reason.
In addition, increase in long-term debt has been escalating interest expenses, in turn, weighing on the company’s profitability. At the end of 2016, long-term debt increased 45% year over year to $3.2 billion. Its debt-to-capital ratio remains below 55%.
The stock also seems to be overvalued. Its Price to Sales (PS) ratio of 1.29 is higher than the industry average of 0.76.
Zacks Rank and Stocks to Consider
Acadia Healthcare carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the medical sector include UnitedHealth Group, Inc. (UNH - Free Report) , Inogen Inc. (INGN - Free Report) and Infinity Pharmaceuticals, Inc. . While Inogen and Infinity sport a Zacks Rank #1 (Strong Buy), UnitedHealth holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Inogen posted positive surprises in three of the last four quarters with an average positive surprise of 49.08%.
Infinity delivered positive surprises in the trailing four quarters with an average beat of 28.38%.
UnitedHealth delivered positive surprises in last four quarters with an average beat of 3.80%.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>