Deutsche Bank Upgrades Psychiatric Solutions (PSYS) to Buy

February 23, 2009 9:09 AM EST

Deutsche Bank upgrades Psychiatric Solutions (Nasdaq: PSYS) from Hold to Buy. Price target increased by $1 to $34.

Deutsche analyst syas, "We believe PSYS is in the final stages of refinancing its $300m credit facility that is set to mature in 12/09. While PSYS's LIBOR spread is likely to be about 400 bps wider than current 150 bps pricing, we figure the slight dilution is offset by the elimination of this overhang. We also note that the federal stimulus bill injects meaningful dollars into state Medicaid budgets, thus mitigating (yet not removing entirely) the risk of widespread Medicaid rate cuts. As such, we've come off our prior (2.5%) Medicaid pricing, with our pricing matrix now assuming (1.5%) for this key payer. While we continue to believe PSYS will have to invest further in its staffing and infrastructure to avoid future quality incidents, we believe this aspect of PSYS's business (and the potential impact on future margin gains) is well understood by investors at current valuation levels (11.3x fwd P/E)."

Psychiatric Solutions, Inc. (Psychiatric Solutions) is a provider of inpatient behavioral healthcare services in the United States.

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