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On Wednesday, Raymond (NSE:RYMD) James affirmed its Strong Buy rating and a $40.00 price target for Acadia Healthcare (NASDAQ:ACHC) shares. The firm’s analysis suggests that a private equity buyout of the company is increasingly plausible, despite not being the primary expectation. Currently trading at $29.86, InvestingPro data indicates the stock is significantly undervalued, with analyst targets ranging from $35 to $72. The company’s performance in the public market has been lackluster, with the stock down 62% over the past year, partly due to legal challenges and faltering fundamentals. According to InvestingPro Tips, the stock’s RSI suggests oversold territory, potentially supporting the buyout thesis.
The investment firm ran a leveraged buyout (LBO) model to determine a feasible acquisition price for Acadia Healthcare by private equity firms. With current EBITDA at $672 million and a significant debt burden of $2.1 billion, the model indicates that a purchase price between $40 and $50 per share, corresponding to approximately 8 to 9 times EBITDA, would be reasonable. However, the firm notes that a price above $50 may not offer sufficient returns given the associated risks of the business. For deeper insights into Acadia’s financial health and valuation metrics, InvestingPro offers comprehensive analysis in its Pro Research Report, available for over 1,400 US stocks.
Raymond James’ base case scenario sets the target at $49 per share, which is based on 9 times the projected 2026 EBITDA. This valuation suggests a 2.3 times cash-on-cash return and a 20% internal rate of return (IRR), assuming both entry and exit multiples of 9 times and leverage of 4.5 times. The firm believes that any potential deal would require at least a 2 times cash-on-cash return and a high-teens IRR, given the size and complexity of the transaction, as well as the company’s exposure to Medicaid and Supplemental payments and legal risks. Current metrics from InvestingPro show an EV/EBITDA of 7.18x and a P/E ratio of 10.78x, with the company maintaining a "GOOD" overall financial health score despite recent challenges.
The provided table by Raymond James illustrates the IRR and cash-on-cash returns for a range of potential buyout prices from $40 to $50, offering a detailed financial perspective on the potential private equity takeover scenarios for Acadia Healthcare. The analysis underscores the financial metrics that would be necessary to make a private equity deal viable for the healthcare provider.
In other recent news, Acadia Healthcare reported its financial results for the fourth quarter of 2024, revealing a shortfall in both earnings per share (EPS) and revenue forecasts. The company posted an EPS of $0.64, missing the expected $0.72, and revenue of $774.2 million, below the projected $780.22 million. This follows Acadia Healthcare’s announcement of a $550 million senior notes offering, which was upsized from an initial $500 million. The proceeds from this offering are earmarked for repaying existing borrowings under the company’s senior secured revolving credit facility.
Additionally, Mizuho (NYSE:MFG) Securities revised its outlook on Acadia Healthcare, lowering the stock’s price target from $48.00 to $37.00 while maintaining a Neutral rating. The adjustment comes after Acadia updated its long-term financial targets, indicating a decrease in expected revenue and EBITDA growth. Meanwhile, KeyBanc Capital Markets also reduced its price target for Acadia Healthcare from $70.00 to $65.00, though it retained an Overweight rating. These analyst actions reflect concerns over Acadia’s recent earnings results and future projections.
Acadia Healthcare continues to face operational challenges, particularly with underperforming facilities, which have impacted its financial performance. Despite these hurdles, the company is actively expanding, with plans to add 800 to 1,000 new beds in 2025.
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