Behavioral Health Composite

July, 2019

Behavioral Healthcare Stocks up 6.1% in July

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 6.1% for the month of June. The S&P 500, by comparison, was up 0.5% during the same period.

“AAC helped the Behavioral Health Composite show a positive gain in June for the first time in months.  It looks like they still have some work to do, but it was the first time the stock had any real momentum in quite a while”, said Kevin Taggart, Managing Partner at Mertz Taggart.

The BHC index has finally rebounded resulting from:

  • American Addiction Centers – AAC (↑9.2%) rose for the first time in months, with the stock price peaking at $1.27 on July 11.  This increase may have been in anticipation of the NYSE’s approval of AAC’s plan to improve its market capitalization and share price.  Previously, the NYSE notified the company that it had fallen below the Exchange’s requirement of an average market capitalization of $50 million or more over a consecutive 30 trading-day period.  The NYSE’s acceptance of AAC’s plan makes the company eligible for an 18-month cure period, ending November 17, 2020, during which the company must meet the Exchange’s market capitalization requirement.  Separately, by January 3, 2020, AAC must achieve an average share price exceeding more than $1.00 for a 30-day trading period.                
  • Acadia Healthcare – ACHC (↓6.9%) decreased in July as the market expected ACHC to deliver a year over year decline in earnings despite higher revenues for the quarter ended June 30.  However, ACHC actually beat quarterly earnings estimates at $0.61 per share vs estimates at $0.59 per share.  This led to a decrease of 6.9% for the month relative to a 9.7% drop leading up to the earnings release.  Over the last four quarters, the company has surpassed consensus EPS estimates twice. 
  • Universal Health Services – UHS (↑16.0%) had a strong month due to beating both Q2 revenue and earnings estimates.  UHS came out with quarterly earnings of $2.76 per share, beating the estimates of $2.49 per share and prior year of $2.47 per share.  Over the last four quarters, the company has surpassed consensus EPS estimates three times.  Net revenues increased 6.5% to $2.855 billion during Q2’19 as compared to $2.681 billion during the same period prior year.  For the behavioral health care segment, Q2’19 adjusted admissions increased 0.5% while adjusted patient days increased 0.3% as compared to Q2’18, on a same facility basis.  At these facilities, Q2’19 net revenue per adjusted admission increased 2.2% while net revenue per adjusted patient day increased 2.4% YoY.  On a same facility basis, behavioral health care services’ net revenues increased 2.7% YoY.
graph displaying data for january health composite

For the last twelve months (LTM), the BHC was well behind the S&P 500 at a -28.7% loss relative to the S&P’s gain of 5.8%. 

graph displaying data for january health composite

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. 

Stock Prices

Company 7/31/19
AAC $0.98
ACHC $31.94
UHS $150.86

Enterprise Value/EBITDA

Company 7/31/17 7/31/18 7/31/19
AAC 12.10x 12.61x N/A
ACHC 13.69x 11.21x 11.85x
UHS 8.67x 9.12x 10.47x

Enterprise Value/Revenue

Company 7/31/17 7/31/18 7/31/19
AAC 1.25x 1.89x 1.43x
ACHC 2.78x 2.26x 2.17x
UHS 1.47x 1.47x 1.64x

M&A News

July 19, 2019 –  AppleGate Recovery, a BayMark Health Services company, announced the acquisition of KSPS Medical Consultants, an office-based opioid treatment (OBOT) program with two locations located in Middletown, KY near Louisville and Bowling Green, KY. The facility, established in 2014, provides buprenorphine and Suboxone® medication-assisted treatment in a physician’s office setting.  AppleGate Recovery now operates 16 programs across 7 states focusing on outpatient treatment with buprenorphine and buprenorphine compounds.

July 11, 2019 –  Coastal Behavioral Healthcare is merging with First Step of Sarasota to offer a “one-stop shop” for mental health and addiction services in the Sarasota, FL region.  Both companies are non-profit agencies.  Coastal Behavior Healthcare provides behavioral health services whereas First Step of Sarasota provides addiction treatment services.   

July 11, 2019 –  Blue Sprig Pediatrics, Inc. (BlueSprig) announces that it has acquired the assets of St. Louis, MO-based Thrive Autism Solutions (Thrive). Thrive is a multi-state clinic and home based provider of Applied Behavior Analysis (ABA) therapy services treating children with Autism Spectrum Disorder (ASD).  Headquartered in Houston, TX, BlueSprig is the largest autism services provider in Texas with locations in Arizona, Kentucky, Ohio, Oklahoma, Oregon, South Carolina and Washington.

July 10, 2019 –  Norwest Venture Partners, a growth equity and venture investment firm managing more than $7.5 billion in capital, announced that it has made a growth equity investment in Gateway Learning Group (Gateway), a leading provider of Applied Behavioral Analysis (ABA) services for children with autism spectrum disorder (ASD).  Gateway is based in San Francisco and provides services in 17 counties throughout California.

July 9, 2019 – Psychiatric Medical Care, LLC (PMC), a behavioral healthcare management company with operations in more than 20 states and backed by Consonance Capital Partners, has acquired Integrated Telehealth Partners (ITP).  ITP leverages telehealth to provide access to psychiatric services in underserved communities across a variety of clinical settings.  To date, ITP has provided more than 50,000 hours of telepsychiatry services to patients in hospitals, community mental health centers, crisis centers, and county jails.  PMC manages both inpatient psychiatry units and intensive outpatient psychiatry programs within hospitals.  PMC also provides telepsychiatry services across a variety of clinical settings.