Tag Archives: NASDAQ:ACHC

Acadia Healthcare: Zacks’ Bear of the Day Play

While the surprise election of Donald Trump rocked a number of market sectors, few were hit as hard as the hospital/health facility market. That is largely because a Republican clean sweep this year arguably puts the Affordable Care Act—also known as Obamacare— on the chopping block, something that could undo years of gains for the hospital/health facility market in particular.

Why this area? Well, these companies have benefited tremendously from the ACA, as it has put millions of new insurance-covered customers in their systems, boosting profits in the process. And with this likely taken away in the near future, it could be a very rough period for this space. And while most investors have been focused on HCA Holdings (HCAFree Report) as the poster child for this new world, those looking for a more promising short candidate might want to go beyond the traditional hospital space and investigate Acadia Healthcare (ACHCFree Report) instead.

ACHC in Focus

Acadia, an operator of behavioral health services and facilities across the nation (and now with a UK presence as well), saw its share price peak long before the prospect of Trump winning the election was on anyone’s mind, in August of 2015. Since then, shares have been on a sharp downward trajectory, with prices falling by more than 25% in the past three months alone.

And while shares have actually done reasonably well since the election, the outlook for the sector at-large remains poor, while there are still plenty of concerns over ACHC’s health in the near term. As evidence for this, consider some of the recent earnings estimates for ACHC stock.

Recent Estimates

Analyst opinion of the stock’s earnings potential in recent weeks has gone almost straight down, and now the company is expected to see earnings contract year-over-year for the current quarter. The full year and next figures are arguably even worse, as we have seen seven analyst estimates go lower in the past thirty days for the full year, and then nine estimates go lower for the next year time frame too.

The impact of these analyst revisions has pushed the consensus estimate down by about 20% in the past few months for the current quarter, and then down 8.7% for the full year and down 13.9% for the following full year. Add in a so-so history in recent earnings reports and it becomes a rough outlook for the company in the near term.

But that isn’t all, as the company is actually in an industry that is in the bottom 10% overall, without a single company that is ranked as a ‘buy’ or ‘strong buy’ right now. No wonder shares of ACHC have a Zacks Rank #5 (Strong Sell) and why we are looking for more underperformance from the company in the weeks ahead.

 

 

Other Picks

Clearly, ACHC is probably not a good choice for investors right now, and investors need to look to other companies. The hospital space is completely devoid of ‘buy’ rank stocks though, so it might be a good idea to look elsewhere for gains.

One promising segment right now is the biotech world, as the political risks are far lower, while growth potential is far higher as well. The segment actually has more than 50 buy ranked stocks in its group, so check out the list of top ranked biotech stocks for a closer look at this market segment, and definitely consider these over the hospital/health facility market for now.
More Stocks to Sell. Now.

Beyond our Bear Stock of the Day, today’s list of 220 Zacks Rank #5 Strong Sells demand even more urgent attention. If any are lurking in your portfolio or Watch List, you should consider removing them immediately. Many appear to be sound investments but, since 1988, such stocks have actually performed more than 11X worse than the S&P 500.

See today’s Zacks “Strong Sells” absolutely free >>

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Acadia Healthcare: Zacks’ Bull of the Day Play

Acadia Healthcare (ACHCSnapshot Report) this year became the largest provider of inpatient behavioral health care services, including psychiatric and chemical dependency treatment, in both the US and the UK. They also run therapeutic school-based programs to address substance abuse and mental health risks for our most vulnerable citizens.

And the stock just broke above a 3-month consolidation between $66 and $74 that included a secondary offering of 4.5 million shares. This demonstrates strong demand for the company’s growth story.

Maintaining a solid Zacks Rank of #2 or better most of the past year, there are two primary reasons that propel analysts to keep raising earnings estimates: strong organic and acquisitive growth in a specialty area of healthcare with solid trends.

Specialty Care Trends

With a mix of inpatient psychiatric hospitals, residential treatment centers, outpatient clinics and therapeutic school-based programs Acadia Healthcare has a comprehensive approach to helping people overcome debilitating mental and substance abuse issues.

Clearly this is an area in our society that is seeing more patients and greater need for quality care, not less. And through the acquisition of over 2,500 beds in over two dozen facilities in the past year, Acadia has become the largest provider of these specialty services in the US and the UK.

Revenue Growth Path

Here’s a snapshot of the top line growth for Acadia…

And here’s what Jefferies analyst had to say in June about this revenue growth path (courtesy of StreetInsider.com)…

Jefferies reiterates a Buy rating and $88.00 price target on Acadia Healthcare following Jefferies Healthcare Conference. Analyst Brian Tanquilut believes that ACHC wll double its revenue to $4 billion in 3 years.

Tanquilut commented, “We walked away from the fireside chat we hosted with ACHC CEO Joey Jacobs and President Brent Turner with an even more bullish view on the name given our belief that the company will be able to grow its revenue run-rate from ~$2B at year-end 2015 to ~$4B by year-end 2018. Strong service demand and market share gains should enable ACHC to drive 8%-10% organic growth, while a strong M&A pipeline should yield consistent deal flows over the next few years.”

The ACA Tailwind Remains

With the recent Supreme Court decision to uphold the Affordable Care Act as the law of the land, healthcare providers, insurers, and patients have regained some degree of certainty about what the next few years will look like regarding care and how it gets paid for.

The level of certainty for hospitals was confirmed when stocks like Tenet Health (THCAnalyst Report) and HCA Holdings (HCASnapshot Report) soared last week on the SCOTUS vote.

And on July 3, Aetna (AETAnalyst Report) and Humana (HUMAnalyst Report) entered into a definitive agreement under which Aetna will acquire all outstanding shares of Humana for a combination of cash and stock valued at $37 billion or approximately $230 per Humana share

Last year, Baird analysts had this to say about Acadia’s business model within that larger landscape of healthcare…

“Skeptics nitpick the substance abuse subsector as ‘non core,’ but we think that is short-sighted and ignores an expanding addressable market supported by numerous policy tailwinds (similar themes to inpatient psych). ACHC remains one of our top growth ideas.”

The analysts recently reiterated ACHC as one of their top growth ideas.

Institutions Check In

One of my primary catalysts for stock selection in the Zacks Follow the Money (FTM) Trader is institutional buying. When we originally bought shares in July 2014 we did so because of strong net institutional buying in Q1 of last year.

That pattern has continued in the past 4 quarters with many new buyers as well as existing holders adding to, not taking profits on, their positions. Of note in Q1 of 2015, which saw 12% net accumulation, was the giant Wellington Management adding 895,000 shares to bring their haul to over 4 million.

The 13Fs for Q2 should reveal many more names who were gobbling up shares between $66 and $74 after the recent secondary. My sense is that many of them imagine holding ACHC long-term until shares are well into the $90s.

Disclosure: I own Acadia Healthcare shares for the Zacks FTM Trader.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.

Acadia Healthcare: Zacks’ Bull of the Day Play

Acadia Healthcare (ACHCSnapshot Report) provides inpatient behavioral health care services, including psychiatric and chemical dependency services. The stock became a Zacks #1 Rank in July after significant bumps in analyst earnings estimates for this year and next, with 2014 EPS projections moving up to $1.44 from $1.30, representing 34% annual growth.

And 2015 estimates were lifted to $1.96 from $1.58 over the summer, equivalent to 37% annual EPS growth. But this was all before the company reported Q2 earnings in late July.

Since the company exceeded expectations in that report, including a 23% increase in year-over-year EPS on a 20% boost to the top line and an 11.5% jump in same-facility revenue, analysts have become much more optimistic about the company as its strategies of both organic and M&A-based growth are bearing fruit.

Specialty Care Trends

With a mix of inpatient psychiatric hospitals, residential treatment centers, outpatient clinics and therapeutic school-based programs Acadia Healthcare has a comprehensive approach to helping people overcome debilitating mental and substance abuse issues.

Clearly this is an area in our society that is seeing more patients and need for quality care, not less. And the tailwinds of the Affordable Care Act (ACA) are supporting growth in this company’s programs.

Buying Growth

Acadia Healthcare has acquired about 1,700 beds from the spree of seven acquisitions executed in the past 15 months. The latest acquisition of Partnerships in Care (PiC) last month alone added 1,200 beds, thereby appreciating inpatient volumes. The addition of PiC also impelled an earnings accretion of 17–18 cents per share, before expenses. Management now expects EPS of $1.44–1.46 in 2014, up from prior estimate of $1.26–1.29.

The acquired and the organic bed expansion along with smooth execution of the ACA policies are expected to drive meaningful growth for the company going forward, as reflected by enhanced EBITDA margin in first-quarter 2014. Although higher debt remains a concern, steadily improving cash flows are likely to support leverage.

Here’s how Baird analysts viewed this specialty hospital before their last earnings report, as they recently raised their EPS outlook and price target from $56 to $60…

“ACHC remains our top growth idea based on superior organic/M&A-driven growth, under-appreciated ACA upside/policy tailwinds, and lower reimbursement risks. Our $60 price target is derived by applying a 30x P/E multiple to our 2016 estimate. We justify that multiple as reasonable based on our belief that ACHC should be capable of growing earnings 30%+ over the next 2-3 years if it can execute on its development strategy.”

And here was the Baird update in late July, where analysts noted the “exceptional quarter” that they saw as much better than the headline…

“2Q results further highlight ACHC’s exceptional growth model, highlighted by +11.5% SS revenue growth and +20% y/y EBITDA growth. Some may nit-pick the in-line 2Q EPS; however, this is entirely due to Street mis-modeling of the PiC-related equity offering and it’s fairly well understood by investors. ACHC remains one of our top growth ideas, and we can see a pathway towards a +$75/stock, assuming ACHC can sustain +30% EPS growth on the out-year (before ACA/MHP tailwinds).”

ACA: Growing Pains and Progress

After all the opposition and lobbying to annul the law, the multi-year implementation of ACA is finally reflected in positive signs from healthcare providers (in the form of improved earnings), consumers (higher enrolments) and the market (wider coverage at lower healthcare spending). This paves the way for affordable healthcare facilities and expanded coverage for patients with pre-existing health conditions, while also bringing about 32 million uninsured citizens under the coverage umbrella.

The U.S. bears the highest health expenditures in the world at about 18% of its GDP. The Centers for Medicare and Medicaid Services (CMS) further expects this to rise to about 20% of GDP by 2022, thereby anticipating a sea-change in the dynamics of the healthcare industry over the next few years.

The Impact On Hospitals

The ACA is making the consumers stronger and the hospital industry can no longer cherry-pick their customers. Additionally, the hospitals are acclimatizing to payment reductions and wild price discriminations due to government insurance programs like the Medicare, Medicaid and online insurance exchanges.

And hospitals are keener to join forces with doctors and insurers for healthy competition and to serve their customers better, which will translate into higher admissions. Alongside, the reduction witnessed in uninsured patients owing to ACA are also expected to drive revenue-per-admission and bottom line for hospitals going forward, while also increasing protection and lowering costs for patients.

Meanwhile, higher enrollments will also likely propel growth in demand for healthcare services, whereby the insureds are expected to increase by about 12 million this year. This will further drive the over-$3 trillion healthcare industry. As well, the reforms under ACA will go a long way toward reducing bad debt problems associated with hospitals.

In July when I bought ACHC shares for the Zacks FTM portfolio, I had this to say…

“Given this backdrop for the sector, Acadia Healthcare is a prime pick in a key care niche. And the stock looks poised for a move above $48 which would target its all-time highs near $54.”

We got that move above $48, but since then the stock has flirted twice with a break back above $52, only to run into the September roll-over of the broad market where small and midcap growth stocks are getting thrown out with the bath water. Back under $48, I expect ACHC to find healthcare-focused growth investors to be very interested in the shares again.

Disclosure: I own ACHC shares for the Zacks FTM Portfolio.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.

Acadia Healthcare: Zacks’ Bull of the Day Play

Acadia Healthcare (ACHC – Snapshot Report) provides inpatient behavioral health care services, including psychiatric and chemical dependency services. The stock became a Zacks #1 Rank this month after significant bumps in analyst earnings estimates for this year and next, with 2014 EPS projections moving up to $1.44 from $1.30, representing 34% annual growth.

And 2015 estimates were lifted to $1.96 from $1.58 in the past two months, equivalent to 37% annual EPS growth. Analysts have become much more optimistic about the company as its strategies of both organic and M&A-based growth are bearing fruit.

With a mix of inpatient psychiatric hospitals, residential treatment centers, outpatient clinics and therapeutic school-based programs Acadia Healthcare has a comprehensive approach to helping people overcome debilitating mental and substance abuse issues.

Clearly this is an area in our society that is seeing more patients and need for quality care, not less. And the tailwinds of the Affordable Care Act (ACA) are supporting growth in this company’s programs.

Buying Growth

Acadia Healthcare has acquired about 1,700 beds from the spree of seven acquisitions executed in the past 15 months. The latest acquisition of Partnerships in Care (PiC) last month alone added 1,200 beds, thereby appreciating inpatient volumes. The addition of PiC also impelled an earnings accretion of 17–18 cents per share, before expenses. Management now expects EPS of $1.44–1.46 in 2014, up from prior estimate of $1.26–1.29.

The acquired and the organic bed expansion along with smooth execution of the ACA policies are expected to drive meaningful growth for the company going forward, as reflected by enhanced EBITDA margin in first-quarter 2014. Although higher debt remains a concern, steadily improving cash flows are likely to support leverage.

Here’s how Baird analysts view this specialty hospital, as they recently raised their EPS outlook and price target from $56 to $60…

“ACHC remains our top growth idea based on superior organic/M&A-driven growth, under-appreciated ACA upside/policy tailwinds, and lower reimbursement risks. Our $60 price target is derived by applying a 30x P/E multiple to our 2016 estimate. We justify that multiple as reasonable based on our belief that ACHC should be capable of growing earnings 30%+ over the next 2-3 years if it can execute on its development strategy.”

ACA: Growing Pains and Progress

After all the opposition and lobbying to annul the law, the multi-year implementation of ACA is finally reflected in positive signs from healthcare providers (in the form of improved earnings), consumers (higher enrolments) and the market (wider coverage at lower healthcare spending). This paves the way for affordable healthcare facilities and expanded coverage for patients with pre-existing health conditions, while also bringing about 32 million uninsured citizens under the coverage umbrella.

The U.S. bears the highest health expenditures in the world at about 18% of its GDP. The Centers for Medicare and Medicaid Services (CMS) further expects this to rise to about 20% of GDP by 2022, thereby anticipating a sea-change in the dynamics of the healthcare industry over the next few years.

The Impact On Hospitals

The ACA is making the consumers stronger and the hospital industry can no longer cherry-pick their customers. Additionally, the hospitals are acclimatizing to payment reductions and wild price discriminations due to government insurance programs like the Medicare, Medicaid and online insurance exchanges.

And hospitals are keener to join forces with doctors and insurers for healthy competition and to serve their customers better, which will translate into higher admissions. Alongside, the reduction witnessed in uninsured patients owing to ACA are also expected to drive revenue-per-admission and bottom line for hospitals going forward, while also increasing protection and lowering costs for patients.

Meanwhile, higher enrollments will also likely propel growth in demand for healthcare services, whereby the insureds are expected to increase by about 12 million this year. This will further drive the over-$3 trillion healthcare industry. As well, the reforms under ACA will go a long way toward reducing bad debt problems associated with hospitals.

Given this backdrop for the sector, Acadia Healthcare is a prime pick in a key care niche. And the stock looks poised for a move above $48 which would target its all-time highs near $54.

Disclosure: I own ACHC shares for the Zacks FTM Portfolio.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.

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