2023-05-15 12:34:53 ET
Summary
- The healthcare sector has produced soft returns this year as investors favor growth.
- After issuing solid Q1 results, shares of AMN have crept higher off key support.
- While the second half of the year could be more challenging, long-term labor market imbalances may favor AMN.
- I continue to like the stock on valuation.
It has been a tech-led year in the S&P 500. Communication services, information technology, and consumer discretionary are the lone trio of sectors that have produced alpha against the S&P 500 year to date. Cyclical-value has underperformed with financials and energy leading the downside. Healthcare, meanwhile, has had its fits and starts.
The generally defensive group is stuck in the middle, and that’s how shares of AMN Healthcare (AMN) have traded lately. I reiterate my buy rating on valuation following a solid Q1, though the chart is not too exciting.
Healthcare Slightly Negative Total Return in 2023
According to Bank of America Global Research, AMN Healthcare provides staffing services to healthcare facilities across the US. In addition to recruiting and staffing healthcare professionals, AMN offers consulting, scheduling, and other workforce management services. It operates through three segments: Nurse and Allied Solutions, Physician and Leadership Solutions, and Technology and Workforce Solutions.
The Texas-based $3.7 billion market cap Healthcare Providers & Services industry company within the Healthcare sector trades at a low 10.7 trailing 12-month GAAP price-to-earnings ratio and does not pay a dividend, according to The Wall Street Journal.
AMN reported a respectable first quarter . Shares have generally rallied after the company issued Q1 EPS of $2.49, better than the $2.36 consensus estimate. The firm also modestly topped revenue expectations. With long-term workforce supply/demand imbalances, there continue to be issues with the labor market in the sector since nursing school enrollment is lower from a year ago for the first time in a decade, according to the company. This creates opportunities for AMN as healthcare services will need assistance managing staffing.
Like some of its peers, some 2023 numbers were guided lower in the report, but at a conference earlier this month after the Q1 release, the management team noted some pickup in demand. Thus, the H2 guide lower may have been overly aggressive to the downside. What’s more, AMN guided Q2 higher given strong margin figures. Overall, it was a decent quarter, and the bar may have been lowered enough for the back half of the year.
On valuation , analysts at BofA see earnings falling sharply this year after the massive profit increase seen in 2021 and 2022. Per-share profits are expected to moderate in the out year and by 2025. The Bloomberg consensus forecast is slightly more bearish than what BofA projects. No dividends are expected to be paid on this healthcare name, but the stock features a strong forward price-to-cash flow multiple of just 10.3 - below the sector average of 15.88. Moreover, AMN trades at modest P/Es.
AMN Healthcare: Earnings, Valuation, Dividend Forecasts
Overall, if we apply a market multiple of 17, which is below the company’s five-year average of 20.9, and assume $7.70 of normalized operating EPS, then the stock should be near $130. I reiterate my buy recommendation.
AMN: Attractive Across Valuation Metrics
Looking ahead, corporate event data provided by Wall Street Horizon show an unconfirmed Q2 2023 earnings date of Thursday, Aug. 3 after market close. Before that, the company's annual shareholders' meeting takes place on Wednesday, May 17, which could stir up some volatility.
Corporate Event Calendar
The Technical Take
AMN continues to trade in a range that dates back about two years now. Notice in the chart below that shares bounced off support in the low $80s that I noted earlier this year. After a minor undercut to the May 2022 nadir (which is a common way technicals play out – barely move below a prior low to clear out stops), the stock has rallied hard. The move higher comes on big volume and a strong snapback in the RSI momentum gauge at the top of the chart.
The bearish side of the equation is that the 200-day moving average is now downward sloping, indicating that the bears have some control over price action. But I expect AMN to continue rallying, but gains are still likely to be capped around $130. If we see a move above $130, then a measured move price target of $180 would trigger based on this wide and long $50 base.
Overall, the technical situation is neutral, but this bounce could have some sustainability toward the high end of this congestion zone.
AMN: A Stubborn Trading Range Continues
The Bottom Line
I reiterate my buy rating based on valuation while the chart is less appealing, but not bearish. A solid Q1 was backed up with a Q2 guide higher, and the firm lowered estimates for the second half of 2023.
For further details see:
AMN Healthcare: A Q1 Beat With Strong Margins Seen In Q2, Reiterate Buy