Acadia Healthcare (NASDAQ:ACHC) Company, Inc. ACHC suffered from weak business volumes recently due to coronavirus breakout.
Here we discuss the reasons for retaining this Zacks Rank #3 (Hold) behavioral and mental healthcare company in your investment portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company’s defensive nature of business and demand for its services should not take a huge hit from the pandemic crisis, given its strong fundamentals. Thus, the recent weakness in business volumes appears to be just a blip and that the metric should recover once the prevalent market conditions improve.
Acadia Healthcare reported a 7% decline in admission volumes for the first two weeks of April but the same was better than the 25% decrease reported by United Health Services, Inc. UHS. Business downfalls subsided in the second half of April. With the easing of COVID-19-related restrictions, the company’s business volumes should gradually rebound.
The ever-increasing demand for behavioral healthcare services and the continued addition of beds should lead to revenue growth in the medium term.
Also, the company paused the sale of its U.K. unit due to the current economic environment, which might not fetch a fair price for the transaction now. The separation of its underperforming U.K. operations was one of the strategic steps undertaken by the company to better its profitability and achieve growth by focusing on more profitable business. This business has been putting up a dismal show over the years and deterring the company’s growth. Also, the proceeds from this sale were supposed to be utilized to improve the company’s debt position.
However, we believe, the company will resume the divestment process once the market stabilizes and attain its strategic goal.
In the past three months, the stock has lost 12.5% compared with the industry’s decline of 17.2%. However, it will stage a comeback once normalcy is resumed.
Also, the company’s stock performance looks upbeat when compared with others in the same space. Notably, Tenet Healthcare Corp. THC, Universal Health (NYSE:UHS) Services and Community Health (NYSE:CYH) Systems Inc. CYH have lost 8.7%, 14.6% and 33.5%, respectively, over the same time frame.
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Universal Health Services, Inc. (UHS): Free Stock Analysis Report
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Acadia Healthcare Company, Inc. (ACHC): Free Stock Analysis Report
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