(By Balaseshan) Deutsche Bank analyst Darren Lehrich downgraded rating on shares of Acadia Healthcare Co. Inc. (NASDAQ:ACHC) to "Hold" from "Buy" on valuation, with $19 price target.
Lehrich said ACHC's recent run-up puts it within striking distance of his $19 price target. Fundamentally, he believes ACHC is performing in-line with his expectations and he still expects the company's M&A pipeline to turn-up a steady stream of hospital acquisitions (1 per quarter assumed in his model).
At current valuations levels (9.1 times forward EV/EBITDA), the analyst believes much of the positive sentiment is priced-in and a "Hold" rating is a more appropriate stance. He continues to believe ACHC can produce mid/upper-single digit same-store revenue growth and build its facilities base by 10%-20% per annum with a steady stream of facility transactions over the next several years.
At current levels, ACHC trades at 9.1 times Lehrich's 2013 EBITDA of $101 million, which assumes 1 acquisition per quarter from Q3-2012 to Q4-2013. ACHC has the capital availability to acquire at a faster pace and/or pursue medium-sized chains.
Yet, in light of Universal Health Services Inc. (NYSE:UHS) Ascend deal, it appears that larger deals will have greater competition. As such, the analyst believes a reasonable M&A upside case could be priced into ACHC at current levels.
Somewhat unrelated to the ratings change, Lehrich noted ACHC's CFO announced his planned departure at the end of July. Based on his conversations with management, he is comfortable that the CFO is departing primarily to pursue different personal interests after dedicating nearly 15 years of his professional career to working on the PSI and ACHC team.
While the analyst does not believe Q2 results or operating trends influenced his decision whatsoever, he observes that his departure is less than one-year into ACHC's emergence as a public company.
This leads the analsyt to believe that a bigger upside case may be less within reach over the near-term. At the very least, the CFO's timing seems off relative to ACHC's medium-term goal to be a billion dollar revenue firm.
ACHC is trading down 4.83% at $17.03 on Wednesday.