Acadia Healthcare Gains From UK Unit Sale, Solid US Business

Acadia Healthcare Company Inc. (NASDAQ:ACHC) is a leading behavioral healthcare platform in the behavioral healthcare industry that is undergoing consolidation in an effort to reduce costs and expand programs. The company has also been working to drive organic growth of existing facilities by increasing bed counts. During the year ended Dec 31, 2019, the company added 585 beds (exclusive of acquisitions), including 425 added to existing facilities and 160 added through the opening of two de novo facilities.

For the year ending Dec 31, 2020, the company expects to add approximately 600 total beds exclusive of acquisitions. It is also working on partnership strategy. It has a strong track record of partnering with health systems and hospitals across the country. It has five joint ventures operating and three currently in development. As a result of these factors, the company expects to achieve revenue growth in the 5% to 7% range throughout 2020 for its U.S. operations. Additionally, in the second half of the year, it expects to achieve its goal of revenue growth at the high end of that range and EBITDA margin improvement for its U.S. operations.

The company is also making opportunistic acquisitions to expand in the behavioral healthcare industry in the United States. To this end, in 2019, it completed the acquisitions of Bradford Recovery Center, a specialty treatment facility and Whittier Pavilion, an inpatient psychiatric facility.

Further business streamlining will aid the company’s growth by focusing on core business. During 2019, the company commenced a review of strategic alternatives including those related to its U.K. operations (accounted for 35% of its 2019 revenues) and its potential sale. It is now in the second phase of the sale process, which is expected to complete in the second quarter or early in the third quarter of 2020.

The sale of U.K. operations will boost Acadia Healthcare’s performance. This business has been underperforming over the years and negatively impacting the company’s growth. Also, we believe it is most likely to use the funds generated from this sale for debt repayment, which will improve its debt position.

The company is also working to improve efficiencies throughout its operations, which are expected to provide approximately $20 million in annualized cost savings by the end of 2020. Most of the savings will be in procurement, which will impact supplies and other operating expenses, and will thus aid margins.

The company’s recently provided 2020 guidance also look encouraging. It calls for revenues between $3.28 billion and $3.34 billion (indicating an increase of 6.2% year over year), adjusted earnings per share in the range of $2.2 to $2.4 (suggesting an increase of 69.4% year over year). Given these positives, the stock has gained 14.6% in the past six months compared with the industry’s growth of 6.83%.

Other companies in the same space such as HCA Healthcare, Inc. (NYSE:HCA) and Tenet Healthcare Corporation (NYSE:THC) gained 11.3% and 37.9% respectively, while Universal Health Services, Inc. (NYSE:UHS) was down by 9.9%, over the same time period.

Acadia Healthcare carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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