Buy Rating Justified: Acadia Healthcare’s Undervaluation and Poised Growth Amid Market Overreaction

Leerink Partners analyst Whit Mayo reiterated a Buy rating on Acadia Healthcare (ACHC – Research Report) on April 24 and set a price target of $100.00.

Whit Mayo has given his Buy rating due to a combination of factors that suggest Acadia Healthcare’s stock is undervalued and poised for growth. The stock has seen a notable underperformance, dropping significantly more than the healthcare sector index, which Mayo attributes to an overreaction by the market. Despite expectations of softer volumes in the first quarter of 2024, the historical trend of the company outperforming its initial guidance, and conservative assumptions within that guidance, underlie his confidence. Mayo’s outlook is further bolstered by diminishing controversies around the company, anticipated stronger growth in the second half of the year, policy tailwinds, and improved margins that he believes will improve investor sentiment and valuation.
Moreover, Mayo perceives the current stock price, which trades below its historical average price-to-EBITDA ratio, as an attractive entry point for investors. He argues that the market has excessively discounted Acadia’s stock, failing to adequately account for positive future earnings before interest, taxes, depreciation, and amortization (EBITDA) projections for 2025. Furthermore, the guidance for the first quarter of 2024 incorporates modest growth assumptions that seem achievable, and the company only requires a reasonable organic EBITDA growth to meet its targets. The second half of 2024 is expected to see an acceleration in growth driven by a significant addition of new beds, which is a scarce competitive advantage as other providers may face decelerating growth. Mayo anticipates that the current controversies will likely diminish over the next six months, further supporting his positive outlook on the stock.

According to TipRanks, Mayo is a 3-star analyst with an average return of 1.5% and a 48.08% success rate. Mayo covers the Healthcare sector, focusing on stocks such as Humana, Pediatrix Medical Group, and Cigna.

In another report released on April 15, Barclays also maintained a Buy rating on the stock with a $100.00 price target.

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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.