Could PHC be the next target of consolidation in the behavioral services industry? Print E-mail
By Peter Deplama   
Thursday, 11 March 2010 03:00

PHC (NYSE AMEX: PHC), which does business as Pioneer Behavioral Health, is the second largest publicly traded pure-play provider of behavioral services in the country, providing substance abuse treatment facilities in Utah and Virginia, and inpatient and outpatient psychiatric facilities in Michigan, Pennsylvania, and Nevada.

Yesterday, shares of Psychiatric Solutions (NASDAQ: PSYS), the largest pure-play publicly traded behavioral health services company, surged more than 20% and is up again today after the company said it received an unsolicited offer to be acquired.

Why the sudden interest in what has historically been a low-profile industry? The new Domenici mental health parity bill, which begins to take effect in July for most payors, requires them to treat mental health illnesses the same way as physical illnesses. It is expected to drive significant revenue as healthcare companies will be required to treat and reimburse mental health illness in the same way they do physical illness. This could be a boon to companies in the sector. Participants that want to grab what is expected to be a share of a growing pie will likely need to do so via acquisition, as it can take as long as a year or more to receive certification to get reimbursed for services.

As the second largest publicly traded pure-play provider of such services in the country, PHC could be an acquisition target. Total net revenue from continuing operations for the three months ended December 31, 2009 increased 16.7% to $12.9 million compared to $11.0 million for the three months ended December 31, 2008.

Despite the fiscal second quarter being the seasonally slowest for the company, PHC earned a penny a share from continuing operations, versus a loss of 2 cents a year earlier. It has earned three cents for the first six months of the year, versus a loss of 4 cents in fiscal 2009. Last week, the company said that its new adolescent unit in Nevada which just came online would add an incremental 3 cents per share in earnings, above what the company already was scheduled to earn. With consolidation just beginning in the industry, PHC could represent an attractive target for a new industry entrant or somebody looking to expand.

 

Disclosure: No Positions




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