Acadia Healthcare (ACHC): Jefferies Top Pick for 2016

Jefferies analyst, Brian Tanquilut, highlighted Acadia Healthcare (NASDAQ: ACHC), as his top pick on Medicaid potential as coverage expands to Mental Health. No change to the Buy rating or $100 PT.

The thesis on ACHC is organic growth through consistent bed additions (as patient demand remains strong). However, the upside to ACHC's LT growth that the expansion of Medicaid coverage for mental health. Social and political pressure continues to rise for Congress and the administration to strengthen mental health programs and the expansion of coverage for adult Medicaid beneficiaries is the key tool for the government to address mental health issues.

ACHC's Priory acquisition is highly accretive, but its EPS contribution hasn't been reflected in the stock. The acquisition of the UK's largest mental health provider, Priory, announced last week, is ~15% accretive to annualized EPS ($0.38-$0.42 guide vs. $2.83 '16 cons). While last week's broader market weakness impacted stock valuations, we believe that the magnitude of the EPS upside from Priory should have yielded much better stock performance for ACHC.

No change to Buy rating or $100 PT, derived by applying a 25x PE/G parity multiple to our proforma FY17 EPS of $4.02

For an analyst ratings summary and ratings history on Acadia Healthcare click here. For more ratings news on Acadia Healthcare click here.

Shares of Acadia Healthcare closed at $62.45 yesterday.

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