Here’s why you should keep Acadia (ACHC) in your portfolio – March 15, 2023
Acadia Healthcare‘S (ACHC – Free report) rising sales, value-added acquisitions, performing US business, opportunistic joint ventures, and its history of streamlining underperforming companies make it worth keeping in your own portfolio. Its favorable growth estimates are also boosting investor confidence.
The company is a leader in behavioral health with offices in 39 states across the United States with a diversified patient and payer base. The ACHC is able to meet the unmet needs of patients and provide them with quality services.
Zack’s rank & price performance
ACHC currently carries a Zacks rank #3 (hold). Over the past year, the stock is up 7.5% while the industry is down 13.7%.
Optimistic growth forecasts
Zacks consensus estimate for 2023 ACHC revenue is priced at $3.30, up 9.6% from the $3.01 reported last year. The same is true for ACHC’s 2023 revenue, which is forecast at $2.9 billion, up 9.5% from the $2.6 billion reported last year.
Acadia Healthcare is a leader in pure behavioral health in the United States, serving 75,000 patients daily across its four lines of service. It aims to improve operational results by expanding its networks, providing high quality services and using a marketing strategy to attract new patients. It also keeps an eye on identifying opportunistic acquisitions and joint ventures to expand its current locations and develop new services.
ACHC has widespread facilities across the United States, with a total of 250 facilities. As a leader in a highly fragmented industry, it is expected to leverage numerous strategies and position itself well for success due to its increased size and scale.
ACHC’s rising revenue, strong US business driven by robust volumes and continued expansion through bed additions, de novo facilities, acquisitions and joint ventures bode well for its long-term growth. In 2022 it added 290 beds to its existing facilities and is more ambitiously aiming to add 300 beds in 2023.
Acadia Healthcare’s business is well diversified across 39 US states. Its patient, payer and geographic diversity reduces the risk of a single facility. There is no single entity contributing more than 4% to ACHS revenue, and no state will contribute more than 14% in 2022.
The Company believes that the behavioral services market will grow in the future as people become more aware of mental health and substance abuse 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 who do not receive treatment for their mental illnesses, and treat them with physical ones integrate health. The estimated annual growth rate for the mental health market is 6-9% between 2021 and 2026.
Adding to the positives is ACHS’ strong cash flow position to make further investments to support expansion. Its operations generated $380.6 million in 2022, up from $374.2 million in the prior year. The costs required to purchase and replace expensive medical equipment accounted for just 2% of total revenue in 2022, significantly lower than other healthcare facilities.
The ACHC projects annual EBITDA growth of 10-12% from 2024-2028 based on continued expansions, greater fundamental technology improvements and a focus on substance use disorders.
There are a few factors hampering the stock’s growth lately.
ACHC’s operating expenses increased by 9.7% in 2022, primarily due to higher personnel expenses and other operating expenses. Rising costs can impact margins.
The company’s high level of debt remains a concern, as its long-term debt far exceeded its cash and cash equivalents at the end of 2022. In order to service and refinance its debt, the company may have to cut its investments in the future. Nonetheless, we believe that a systematic and strategic plan of action will drive growth over the long term.
Stocks to consider
Some better-ranked stocks in the broader medical space are Amphastar Pharmaceuticals (AMPH – free report) BioRad Laboratories (ORGANIC – Free report) and Catalyst Pharmaceuticals (CPR – free report). Each of these companies currently has a Zacks Rank #1 (Strong Buy). You can see the full list of today’s Zacks #1 Rank stocks can be found here.
Zacks consensus estimate for Amphastar Pharmaceutical’s earnings in 2023 points to growth of 3.1% year over year. Over the past year, AMPH’s stock is up 8.8%.
Zacks consensus estimate for AMPH’s earnings in 2023 has moved up 12.8% over the past 30 days.
Zacks consensus estimate for BioRad Laboratories’ 2023 earnings points to 10.3% year-over-year growth. Zacks consensus estimate for 2023 BIO revenue has moved up 5.9% over the last 30 days.
Zacks consensus estimate for Catalyst Pharmaceuticals’ 2023 earnings points to 54.5% year-over-year growth. Zacks consensus estimate for CPRX earnings in 2023 has moved up 2.7% over the past 60 days. Over the past year, CPRX has gained 88.2%.
5 shares are doubled
Each was handpicked by a Zacks expert as the #1 most popular stock to gain +100% or more in 2021. Previous recommendations are up +143.0%, +175.9%, +498.3%, and +673.0%.
Most of the stocks in this report fly under Wall Street’s radar, which presents a great opportunity to get on the ground floor.
Check out these 5 potential home runs today >>