Acadia Healthcare, a provider of inpatient behavioral health care services, has recently received an upgrade to a Zacks Rank #2 (Buy), making it a promising choice for investors. This upgrade is primarily driven by the upward trend in earnings estimates, which has a significant impact on stock prices.
The Zacks rating system is based on a company’s changing earnings picture, with the Zacks Consensus Estimate tracking the consensus of EPS estimates from analysts covering the stock. This system is useful for individual investors as it provides an unbiased assessment of a company’s earnings outlook.
For Acadia Healthcare, the upgrade to a Zacks Rank #2 is a positive comment on its earnings potential, suggesting that its stock price may experience a favorable impact. The correlation between a company’s earnings estimate revisions and its stock movements is well-documented, as institutional investors rely on these estimates to determine a company’s fair value. Any changes in these estimates result in corresponding changes in a stock’s fair value, leading to price movement.
By tracking trends in earnings estimate revisions, investors can make informed investment decisions. The Zacks Rank stock-rating system plays a crucial role in this process by utilizing earnings estimate revisions to classify stocks into different groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell). Stocks ranked as Zacks Rank #1 have historically generated an average annual return of +25% since 1988.
Analysts have been consistently raising their estimates for Acadia Healthcare, with the Zacks Consensus Estimate increasing by 5.5% over the past three months alone. For the fiscal year ending in December 2023, the company is expected to earn $3.40 per share, reflecting a 13% change from the previous year’s reported number.
Unlike other rating systems that tend to be biased towards favorable recommendations, the Zacks rating system maintains an equal proportion of ‘buy’ and ‘sell’ ratings for its entire universe of stocks. Only the top 5% of Zacks-covered stocks receive a ‘Strong Buy’ rating, indicating their superior earnings estimate revision feature and potential for market-beating returns.
The upgrade of Acadia Healthcare to a Zacks Rank #2 places it in the top 20% of Zacks-covered stocks in terms of estimate revisions, suggesting that the stock may experience positive movement in the near term.
Sources: Zacks Investment Research