Behavioral Health Care Stocks Up – 1.9% in May
The Behavioral Health Composite, which tracks investor interest in the three public behavioral healthcare companies – Acadia Healthcare (ACHC), American Addiction Centers (AAC), and Universal Health Services (UHS) – was up slightly after a down month, gaining 1.9% of its value in May. The S&P 500, by comparison, grew at the same 1.9%. Stocks were mixed, but the strength of Acadia’s Q1 2018 earnings, which produced a 12.3% return for the month, drove the composite higher. “BHC stock performance for the month is a bit misleading. While the overall composite was up ‘modestly’, if you look at ACHC and AAC, throughout the month, there were some interesting storylines.”, said Cory Mertz, Managing Partner.
May means earnings season and brought mixed results among the public companies. Diving in…
Acadia Healthcare – ACHC (↑12.3%) rebounded on strong earnings, offsetting a 7.2% loss in April (on the announcement of a class-action lawsuit). The company reported Q1 2018 adjusted earnings of 52 cents per share, which beat the consensus estimates by 8.33% and the prior year by 13%. ACHC generated Q1 revenue of $742MM, beating prior year Q1 by 9.3% and estimates by 1.89%. The growth can be attributed to the addition of more than 57 new beds to the existing facilities. The company expects to add more than 800 beds to existing and new facilities in 2018. “You’re going to see us continue to build our own beds through the joint ventures, and I think in the last six months of this year you will see an acquisition”, commented Joey Jacobs, Acadia’s Chairman, and CEO. It appears US operations are performing well and that things are getting turned around in the UK due to several factors, including increased patient volume and reduction in agency costs.
American Addiction Centers – AAC (↓6.5%) was up 5% through May 22 before closing down 6.5% for the month. What caused the drop? That’s hard to pinpoint as there was no news. However, it’s worth noting Michael Cartwright sold (a relatively modest) 100,000 shares between May 21 and May 23, which seems to have precipitated the fall. While Q1 2018 revenue and Adjusted EBITDA increased by 18% and 20% respectively (adjusted EBITDA was $15.1MM) the company posted a net loss of $0.2MM. The adjustment was due mainly due to a one-time payout from AAC’s settlement with its shareholders complaining the company and some of its executives made false or misleading statements, and for not disclosing information related to the 2010 death of a California patient at a facility company had since acquired.
Universal Health Services – UHS (0.0%) held steady throughout the month on a mixed Q1 earnings release. The company reported Q1 2018 adjusted earnings of $2.45 per share, missing consensus estimates by 5.4%. However, the bottom line grew 17% year over year. Net revenues increased 2.9% year over year to $2.7Bn. However, the top line lagged consensus estimates by 2%. For the behavioral hospital segment, on the same facility basis, adjusted admissions increased 1.6% while adjusted patient days declined 0.4%, on a year-over-year basis. Net revenues increased 3% during the quarter under review on the same facility basis.
For the last twelve months (LTM), the BHC greatly surpassed the S&P 500 at a 23.2% gain relative to the S&P’s gain of 12.2%.
Valuation – Public Comps
Below are the Enterprise Value / EBITDA and Enterprise Value / Revenue ratios for AAC, ACHC, and UHS. The valuations provide a relative barometer for what smaller companies can expect. Given the higher relative risk of smaller companies (e.g., less liquidity, smaller revenue base), we typically (though not always) see multiples that are lower than those of the public companies.
Company 5/31/16 5/31/17 5/31/18
AAC 20.75x 12.11x 12.82x
ACHC 20.03x 11.77x 11.43x
UHS 9.84x 8.75x 8.64x
Company 5/31/16 5/31/17 5/31/18
AAC 2.96x 1.26x 1.92x
ACHC 4.25x 2.40x 2.33x
UHS 1.80x 1.50x 1.41x
May 14, 2018 – Fulcrum Equity Partners acquires Liberation Way, a drug and alcohol addiction treatment facility, with participation from Vocap Investment Partners. Liberation Way has three locations in Pennsylvania currently and is targeting several geographies for expansion in the future.
May 15, 2018 – Halifax Partners acquires ChanceLight Behavioral Health, Therapy & Education, a leading provider of behavioral health, therapy, and education solutions for children and young adults. ChanceLight, headquartered in Nashville, Tenn., serves nearly 19,000 clients and students each year at more than 150 locations in more than 20 states. The Company serves those with autism spectrum and other behavioral disorders.
May 16, 2018 – Webster Capital acquires Behavior Development Group, a provider of Applied Behavior Analysis to children with Autism Spectrum Disorder in the southeast. They work with children with the aim of helping them achieve their maximum potential.
May 23, 2018 – Elements Behavioral Health, a family of behavioral health programs located throughout the U.S., announced that it will execute an asset purchase agreement with a group of its First Lien Lenders under chapter 11 of the United States Bankruptcy Code in the District of Delaware. The business will continue uninterrupted, and operations will be supported by debtor-in-possession (DIP) financing provided by the company’s lenders. The company anticipates the transaction will move swiftly with the sale approval occurring within 4-6 weeks of the bankruptcy filing and closing to occur thereafter, subject to certain regulatory approvals.