Acadia Healthcare (ACHC): Time to Buy Puts?

Acadia Healthcare is a leading provider of behavioral healthcare services, operating 262 facilities with approximately 11,850 beds across 39 states and Puerto Rico. The company offers a continuum of care, including acute inpatient psychiatric services, specialty treatment facilities (residential recovery and eating disorder facilities), 'Comprehensive Treatment Centers' ('CTCs') specializing in medication-assisted treatment for opioid use disorder, and residential treatment centers. Acadia serves a diverse patient population with high-acuity and complex needs, receiving revenue from Medicaid, commercial payors, Medicare, and individual patients. The company differentiates itself through a national footprint with regional density, a diversified revenue base, and a strategy focused on becoming the 'indispensable' provider of behavioral healthcare. This strategy includes expanding existing facilities, joint venture partnerships, de novo facilities, acquisitions, and accelerating expansion across the care continuum.

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ACHC's technical outlook appears bearish. The stock price has experienced a significant decline over the past 90 days, evidenced by the recent close at $20.65, substantially lower than the $24.00+ range observed in July and August. The price is below its 21-day EMA of $23.29 and its 50-day SMA of $23.49, reinforcing the downward trend. Momentum indicators also signal weakness. The RSI is at 32.49, indicating oversold conditions, but also suggesting persistent selling pressure. The MACD at -0.56 is well below its signal line (-0.18), and the MACD histogram is negative, confirming bearish momentum. Furthermore, the Stochastic Oscillator (7.44) is also extremely low, implying oversold conditions, but with no immediate sign of reversal. The ADX is elevated at 26.07, indicating a strong trend, which in this case is downward. The recent price action confirms the downtrend, with lower highs and lower lows. While oversold conditions might lead to a temporary bounce, the overall technical picture suggests further downside potential in the coming 1-3 months.

Acadia Healthcare's MD&A reveals a mixed financial landscape. For the three months ended June 30, 2025, `Net Sales` increased by 9.2% to $869.2 million, compared to $796.0 million for the same period in 2024. However, the six-month revenue growth was a more modest 4.8%, reaching $1,639.7 million from $1,564.1 million. The company attributes this growth to ongoing demand and bed additions. It's important to note that the effective tax rate increased for the six months ended June 30, 2025 to 26.0% compared to 22.3% for the six months ended June 30, 2024. The MD&A highlights rising expenses, particularly in 'other operating expenses', which increased to 15.5% of revenue for the three months ended June 30, 2025, from 13.8% in the prior year. Furthermore, transaction, legal, and other costs surged to $64.4 million for the quarter, largely due to government investigations. Regarding liquidity, `Net cash provided by operating activities` for the six months ended June 30, 2025 was $145.0 million, compared to cash used in operating activities of $150.1 million for the six months ended June 30, 2024. The company is navigating a 'tight labor market' but claims to see 'stability' in labor costs, and remains focused on staffing levels. The presence of forward-looking statements and risk factors suggests potential volatility, while the increase in interest expense due to the issuance of 7.375% Senior Notes adds to the financial burden.

Acadia Healthcare's Q2 2025 earnings call reveals a mildly bearish outlook due to softer volume growth and increased start-up costs, despite solid top-line growth. Total revenue increased 9.2% to $869.2 million, and adjusted EBITDA rose 7.5% to $201.8 million. However, Heather Dixon stated that they are 'updating our adjusted EBITDA range for the full year to $675 million to $700 million,' primarily due to lower expected volume growth. Same-facility patient days increased only 1.8%, below expectations, and while specialty and CTC lines performed well, acute care volumes were weaker, attributed to evolving utilization patterns in managed Medicaid. Start-up losses are now projected at $60 million to $65 million, an increase of $10 million due to accelerated facility openings. Chris Hunter mentioned they are taking 'a harder look at capital spending in our pipeline of projects' due to uncertainty from the One Big Beautiful Bill Act, potentially delaying some expansion plans. The company also noted a $20 million EBITDA headwind from underperforming facilities, with one facility facing 'particularly strong local market pressures.' While the Tennessee Supplemental Payment Program provided a favorable pretax benefit of $51.8 million, the overall tone suggests challenges in volume growth and managing costs, leading to a revised, more cautious outlook.

ACHC's financial performance presents a mixed picture. Revenue has shown an overall upward trend, increasing from $742.8M in Q4 2023 to $869.2M in Q2 2025. However, the gross profit ratio has fluctuated significantly, starting at 0.229 in Q4 2023, peaking at 0.963 in Q3 2024, before dropping to 0 in Q2 2025, raising concerns about cost management and revenue quality. Operating cash flow has also been variable; it was $116.3M in Q4 2023 and reached $133.5M in Q2 2025, but experienced a significant negative swing to -$321.3M in Q1 2024. Total debt has increased substantially from $1.51B in Q4 2023 to $2.38B in Q2 2025, indicating increased leverage. While revenue shows growth, the inconsistent profitability, fluctuating cash flow, and increased debt warrant caution, suggesting a need for closer scrutiny of operational efficiency and financial stability.

The company presents a moderately bullish investment profile based on its key metrics and financial ratios. Revenue has shown positive growth, indicating a healthy demand for its products or services. The gross margin has remained relatively stable, suggesting efficient cost management. The Return on Equity (ROE) indicates a solid return for shareholders. The Price-to-Earnings (P/E) ratio suggests the company is appropriately valued by the market. The debt-to-equity ratio has seen a decrease, showcasing the company's improved financial leverage. The current ratio signifies the company's strong ability to meet its short-term obligations. Overall, the company demonstrates a stable and growing business model with a healthy balance sheet, making it a moderately attractive investment for the next 6-12 months.