Acadia Healthcare (NASDAQ:ACHC) shares plunged more than 10% after the company was downgraded to an ‘Underperform’ rating by Bank of America analysts, who warned that rising insurance and legal costs will pressure profitability into 2026.
The analyst also lowered their price objective on Acadia Healthcare to $13. Shares traded hands at about $14.70 on Wednesday afternoon.
The downgrade follows Acadia’s announcement that it reduced its adjusted EBITDA guidance by $49 million, or roughly 7%, due to higher-than-expected professional and general liability (PLGL) expenses.
The company now expects PLGL costs of $116 million in 2025, up by the same amount from prior guidance and $62 million higher than 2024 levels.
Bank of America analysts wrote that the increased expenses stem from several factors, including higher anticipated settlement costs tied to older policy years, a 168% year-over-year increase in claim frequency for the 2025 policy year, elevated reserves, and less favorable reinsurance terms.
The firm noted that Acadia expects PLGL expenses to remain elevated in 2026 at $100 million to $110 million, still more than double the costs seen in 2024.
The analysts cut their 2025 to 2027 estimates to reflect the higher cost structure and assigned a lower valuation multiple, citing added risk from potential litigation, payor pressure, weak volumes, and a more challenging path to free cash flow improvement.
They also highlighted concerns about upcoming cuts to Medicaid spending under the Reconciliation Act.
The bank’s analysts also pointed out that Acadia’s reduced profit outlook implies higher leverage, with net leverage expected to rise to 3.6x of the new 2025 adjusted EBITDA forecast, compared with 3.3x previously.
The firm said the company had already appeared reluctant to commit to year-over-year EBITDA growth before the most recent rise in legal costs, making future free cash flow gains more difficult.
The combination of higher legal liabilities, operational pressures, and reduced earnings visibility warranted the downgrade and lower price objective, Bank of America’s analysts concluded.