New York, July 19 (FinanceEnquiry.com) – Analyst Darren Lehrich at Deutsche Bank Securities downgrades his rating on the shares of Acadia Healthcare Company, Inc (NASDAQ: ACHC) from BUY to HOLD. The 12-month target price is set to $19.
In a research note published on July 18, the analyst mentions that within the striking distance of price target of $19, Acadia Healthcare Company is placed due to its latest run-up. Furthermore, M&A pipeline of the company is still expected to turn-up a steady stream of hospital acquisitions and moreover this, Acadia Healthcare is believed to be performing in line with the expectations. In addition to this, mentioning that a HOLD rating is a more suitable stance, much of the positive sentiment is believed to be priced-in at current valuations levels ie, 9.1x forward EV/EBITDA.
With a stable stream of facility transactions over the next several years, building its facilities base by 10 percent to 20 percent per annum, mid or upper-single digit same-store revenue growth is considered to be produced by ACHC. At 9.1x 2013E EBITDA of $101 million assuming 1 acquisition per quarter from Q3’2012 to Q4’2013, the company generally trades at current levels.
Moreover, in order to take the possession at a faster pace and pursue medium-sized chains, the capital is available with Acadia Healthcare. However, greater competition is expected to be with big deals taking into account the ascend deal of Universal Health Services, Inc. {(NYSE: UHS) ($41.27; Buy)}. Additionally, at current levels, a feasible M&A upside case is believed to be priced into ACHC.
It has also been noticed that at the end of July, CFO of the ACHC proclaimed about his planned departure to some extent that is unrelated to change of the ratings to some extent. However, it is quite comforting that after dedicating nearly 15 years of his professional career to working on the PSI and ACHC team and primarily to pursue different personal interests, its CFO is departing and this information is basically based on the conversations with management of the company. Nevertheless, relative to medium term goal of the Acadia Healthcare Company that is to become one of the billion dollar revenue firms, the timing of the departure of CFO seems literally off.
Being precedent for 9x to 10x in the early days of PSI, fast growth of Acadia Healthcare actually assisted target multiple. M&A integration, exposure of Medicaid, liquidity of trading and ownership or control of PE have been comprised in the key downside risks, while against the estimates, faster organic growth and margin gains, larger/chunkier M&A has been comprised in the key upside risks. Historical estimated P/E analysis for the years 2012 and 2013 are 30.0 x and 18.9 x, respectively, while actual P/E analysis of 2011 was 17.4 x, the analyst adds further.
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