On Tuesday, KeyBanc Capital Markets upgraded Acadia Healthcare (NASDAQ:ACHC) Company, Inc. (NASDAQ:ACHC) stock, shifting its rating from Sector Weight to Overweight, while setting a price target of $70.00.
The upgrade comes with an optimistic outlook on the company's financial performance in the coming years. With a current market capitalization of $4.17 billion and a P/E ratio of 14.57, InvestingPro data shows the company has been profitable over the last twelve months.
Matthew Gillmor, an analyst at KeyBanc, provided insights into the rationale behind the upgrade. Gillmor anticipates that Acadia Healthcare's stock could see a significant rise during 2025 as clarity emerges on the company's potential EBITDA growth in 2026.
The company's current EBITDA stands at $689.29 million, and the stock has shown strong momentum with a 13.11% return over the past week. The expected EBITDA increase is attributed to the maturation of beds added in 2024 and 2025, coupled with diminishing startup costs.
Despite KeyBanc's 2025 EBITDA estimate being lower than the consensus estimate on Wall Street ($735 million versus $770 million), Gillmor believes that the buy-side has already adjusted expectations to this level. This alignment could pave the way for the establishment of conservative guidance which may be well-received by investors.
Moreover, the analyst predicts a normalization of the company's valuation during the year, potentially exceeding 9 times EBITDA. This forecast is based on the assumption that the impact of negative press coverage faced in 2024 will subside and the focus will shift towards the company's 2026 EBITDA prospects. According to InvestingPro analysis, the stock currently appears undervalued based on its Fair Value model, with several additional ProTips available for subscribers.
KeyBanc's outlook suggests a period of recovery and growth for Acadia Healthcare, as it overcomes previous challenges and moves towards a stronger financial position. Discover comprehensive insights and detailed valuation metrics in the Pro Research Report, available exclusively on InvestingPro.
In other recent news, Acadia Healthcare Company, Inc. reported an 8.7% increase in total revenue for the third quarter of 2024, rising to $816 million, primarily due to patient day growth and rate improvements. Adjusted EBITDA also saw a 10.5% growth, reaching $194.3 million.
Despite facing legal inquiries and a temporary dip in patient day growth in October, Acadia is expanding its bed capacity, projecting the addition of approximately 1,200 new beds in 2024 and further investments in over 2,000 additional beds.
The company has revised its revenue guidance for 2024 to between $3.15 billion and $3.165 billion, and expects adjusted earnings per diluted share to be between $3.35 and $3.45. Acadia has also acknowledged potential closures of underperforming locations, as seen with the recent closure of two satellite programs. However, the company anticipates positive reimbursement developments, particularly in Tennessee, and maintains stable staffing despite legal scrutiny.
These recent developments highlight Acadia's strategic investments and focus on expanding access to behavioral health services. Despite challenges such as legal inquiries and fluctuating patient volumes, the company is committed to growth and quality care. With a solid financial standing and a strategic plan for expansion, Acadia Healthcare is positioned to address the demands of the behavioral health sector in the coming years.
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