Hold Rating on Acadia Healthcare Amid Legislative Uncertainties and Mixed Financial Outlook

In a report released today, Pito Chickering from Deutsche Bank upgraded Acadia Healthcare (ACHC – Research Report) to a Hold, with a price target of $70.00.

Pito Chickering’s rating is based on a careful evaluation of Acadia Healthcare’s current market position and potential legislative changes that could impact the company’s profitability. The Hold rating comes amid a year-to-date decline of 8.6% in ACHC’s stock price, contrasted with gains seen by other healthcare providers. Concerns hinge upon the future of ACHC’s EBITDA, especially if legislative changes erode the competitive edge of ACHC’s Comprehensive Treatment Centers (CTC) division. The perceived neutral risk/reward profile at the current levels, despite these concerns, has led to the decision to maintain a Hold rating and a $70 price target.

The valuation includes a probability-weighted scenario analysis, with a 56% chance that the current business model remains unchanged, meriting a valuation multiple of approximately 13 times the projected 2025 EBITDA. Conversely, there’s a 44% likelihood that the CTC segment could be impaired, potentially reducing the trading multiple to about 9 times the projected 2025 EBITDA, excluding CTC EBITDA. This mixed outlook reflects optimism for Acadia Healthcare’s non-CTC segments, balanced with caution over potential structural risks to the CTC’s growth, which has been a significant driver for ACHC’s overall expansion.

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Acadia Healthcare (ACHC) Company Description:

Acadia Healthcare Co., Inc. engages in the provision of behavioral healthcare services. It operates through the following segments: United States (U.S.) Facilities and the United Kingdom (U.K.) Facilities. The U.S. Facilities segment classified in the following categories: acute inpatient psychiatric facilities; specialty treatment facilities; residential treatment centers; and outpatient community-based services. The U.K. Facilities segment provides inpatient services through facilities, including mental health hospitals, clinics, care homes, schools, colleges, and children’s homes. The company was founded in January 2005 and is headquartered in Franklin, TN.