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PSI Provides Safe Haven for Troubled Souls, Investors

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Inpatient mental health facilities good bet in crazy economic times.

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Volatile swings and crushing losses in the stock market are enough to drive you crazy. Literally.

The phones of psychologists in New York have been ringing off the hook as Wall Street's executives, traders and brokers lose millions - and in some cases, their jobs. It's a scary time, and the psychological stress doesn't just apply to Wall Street – it's a nationwide malaise.

According to a study released earlier this month by the American Psychological Association, 80% of Americans say the economy is a significant cause of stress, up from 66% in April. "People's emotional and physical health is more vulnerable, given the high levels of stress in our country right now," said Dr. Katherine Nordal, the association's executive director.

Psychiatric Solutions (PSYS) is a company prepared to deal with this doom-and-gloom atmosphere. The firm, founded in 1988 and based in Franklin, Tennessee, runs the largest number of inpatient mental-health units in the United States - about 100 in 31 states, with 10,000 beds overall.

It's the leader in a growing industry. PSI's facilities are concentrated in Texas, then Virginia, Florida and California. As the stigma around psychological care has faded, the fortunes of PSI have brightened.

After the bell on Thursday, PSI's earnings came in one penny below estimates -- not too shabby, in this market -- and the company offered guidance for 2009 in line with estimates. "The market demand for our high quality inpatient psychiatric care… has historically intensified in difficult economic environments," Joey Jacobs, Chairman, president and CEO, said in a written statement.

Even before the current economic downturn, demand for beds at most mental-health facilities outpaced supply, in large part because of the fractured nature of the industry. Demand should continue to accelerate for 2 important reasons: The widespread acceptance of psychiatric care, and better commercial insurance coverage. Many states have passed bills that require insurers to provide comparable benefits for mental-health services as those provided for physical ailments.

Congress also included a federal mental-heath parity bill in TARP earlier this month. This will dramatically benefit PSI and the industry as a whole.

PSI's greatest challenge -- a good one to have -- is keeping up with demand. The company's $433.7 million acquisition of Horizon Health in June 2007 will help it do just that: It's adding beds at a steady rate, 600 this year and 400 next year.

Health care companies have always been safe harbors in difficult economic environments. The same has been true this time around - at least so far. Not only is Psychiatric Solutions a safe harbor for mental-health patients, it has been -- and should continue to be -- a safe harbor for investors.
No positions in stocks mentioned.

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