5 Reasons The Prognosis For Acadia Healthcare Just Got Worse

Shares of Acadia Healthcare Company Inc ACHC plummeted 25 percent after the behavioral healthcare services company with operations in the U.S. and U.K. reported disappointing third-quarter earnings.

In reaction to the earnings report, Baird's Whit Mayo downgraded Acadia's stock from Outperform to Neutral with a price target lowered from $55 to $38.

1. Acadia Healthcare acknowledged its U.K. performance in September was unusually soft amid higher agency costs and a tightening labor market, the analyst wrote in a note. Moreover, the country's entire healthcare system is seeing "accelerated challenges" that are likely "magnified" from the 2016 Brexit vote.
2. The stock's forward multiple has been stuck in a range of approximately 10x to 12x EV/EBITDA and there's no reason to justify a multiple of 10x or better.
3. A string of stock sales from insider will prove to be a "sticking point" for investors.
4. A recurring factor, Acadia Healthcare is overly ambitious estimates from Wall Street. This was the case in the third quarter earnings report where the company's revenue of $717 million was 1.3 percent short of expectations and EBITDa of $152 million was 6.5 percent. Meanwhile, initial estimates for 2018 will likely prove to be "too ambitious" and on the high side.
5. The company's growth strategy has been based on acquiring and integrating new behavioral health facilities and moving forward new M&A deals will likely prove to be "less rewarding."

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