Shares of behavioral health company Acadia Healthcare (NASDAQ:ACHC) jumped 8.3% in the morning session after activist investor Engine Capital disclosed it had built a roughly 3% stake in the company and was pushing for significant changes.

In a letter to Acadia's board, the activist fund called for a board refresh, a review of the company's assets, and a halt to expensive projects for new facilities. Engine Capital criticized what it described as Acadia's "growth at any cost" approach, which it claimed resulted in poor execution and a bloated corporate structure. The fund argued that the company's board lacked a single director with relevant operating experience. Engine Capital also encouraged Acadia to consider selling assets to generate cash for share repurchases, describing the company's stock as "deeply undervalued." This push for a strategic overhaul came as Acadia faced multiple federal investigations.

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Acadia Healthcare’s shares are very volatile and have had 21 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 13 days ago when the stock gained 5.3% on the news that Bank of America downgraded the stock and the company was removed from the S&P MidCap 400 index.

BofA Securities lowered its rating on Acadia Healthcare from "Buy" to "Neutral" and cut its price target to $25.00 from $27.00. The downgrade was driven by concerns about greater-than-expected headwinds from upcoming cuts to Medicaid state directed payment programs (SDPs), which are expected to begin in 2028. Adding to the negative sentiment, Acadia was also removed from the S&P MidCap 400 index as part of a quarterly rebalancing. Such an exclusion often prompts selling pressure from institutional investors and index funds that must adjust their holdings to match the index's new composition.

Acadia Healthcare is down 41% since the beginning of the year, and at $24.04 per share, it is trading 68.6% below its 52-week high of $76.61 from September 2024. Investors who bought $1,000 worth of Acadia Healthcare’s shares 5 years ago would now be looking at an investment worth $874.82.

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