Summary
- AMN Healthcare Solutions, Inc. saw a YoY decrease in the last report, but a major move upward taking the whole year into account.
- With the most profitable segment (Technology and Workforce Solutions) taking up a larger part of the revenues, the momentum is there.
- Compared to the sector's average multiple, the company seems like a steal right now and I will rate them a buy because of that.
Investment Summary
AMN Healthcare Services, Inc. ( AMN ) saw a YoY decrease in the last earnings report, but this doesn't do the company justice in my opinion, as they have despite that managed to increase the top and bottom line by 30% in 2022 compared to 2021. With a low TTM p/e, a multiple of just 7, buying at these prices likely offers little risk. The tailwinds like higher demand for workforce solution adoptions to the healthcare service industry will provide a good growth path for the company. Given the growth and the healthy balance sheet the company has I will rate them a buy.
Company Overview
AMN Healthcare Services, Inc. is a leading workforce solutions provider in the healthcare industry. The company was founded in 1985 and is headquartered in San Diego, California. AMN Healthcare offers a range of staffing services and solutions that help healthcare organizations across the United States to meet their staffing needs, including temporary, travel, and permanent staffing, as well as managed services programs and recruitment process outsourcing.
AMN Healthcare's managed services programs and recruitment process outsourcing solutions are designed to help healthcare organizations streamline their staffing processes and improve their overall efficiency. The company's technology-enabled solutions provide real-time analytics and insights to help healthcare organizations optimize their staffing operations and improve patient care.
With a focus on providing high-quality staffing solutions and exceptional customer service, AMN Healthcare has become a trusted partner for healthcare organizations across the United States. The company's commitment to excellence has earned them numerous industry accolades, including being named one of Fortune magazine's "World's Most Admired Companies" in the healthcare staffing industry.
Revenue Breakdown
In the last earnings report , the company saw quite significant decreases in revenues. Most notably the net income decreased by 30% YoY. But this report doesn't tell the full story. Taking the full year of 2022 into account AMN has seen rapid growth in both the top and bottom lines. The EPS for the full year of 2022 came in at $11.9 which means the company is right now trading at a p/e of just 7.7, compared to the sector average of 19.
Earnings Highlights (Earnings Report)
A major reason for the growth the company has experienced is the high vacancies and voluntary turnover in healthcare which helped create demand for total talent solutions. Despite Q4 results coming in much lower than the year before, it exceeded expectations and helped deliver a record year for the company.
Some of the segment highlights in the last quarter were the Technology and Workforce Solutions seeing a 14% increase YoY. The language interpretation services helped the segment grow as the revenues from these services came in at $58 million, a 23% increase YoY. Trends like further modernization of the healthcare sector will help carry this segment further and continue providing a steady stream of revenues. The segment doesn't make up the largest portion of revenues, that would instead be Nurse and Allied Solutions, but what catches my eye is the gross margin being over 50% for the segment. If the management can leverage this further I think this is a major tailwind for the coming several years.
Company Margins (Earnings Report)
Market Tailwinds
Looking at the healthcare sector as a whole there are expectations for it to grow around 5.4% CAGR until 2027. As life expectancy is trending higher the services that companies like AMN provide will be in demand by both more people and for longer.
But what I see as a major tailwind for the company will be the Technology And Workforce Solutions. This part of the company will in my opinion be able to easily scale and become a larger source of revenues too.
The adoption of workforce solutions remains underserved and an addressable market that AMN could tap into. As mentioned before this segment is by far the most profitable at just over 50% gross margins. If AMN can achieve securing contracts, helping clients manage workforce solutions, and keeping costs in check - the upside seems very good right now from an investor's point of view.
The Company's Profitability
Moving over to the profitability of the company I think AMN is in a very good position. They have a ROTC of 20.56% which is very impressive and a ROTA of 15.37%. This is ahead of the sector by a lot. The result of increasing demand for their services has helped push the management to invest more in the company and come out ahead of their competitors.
Assets (Earnings Report)
Looking at the assets the company holds, over 60% of the current assets are in accounts receivables. What has me a little worried is the large portion of assets being goodwill. If there is a write down needed for goodwill the return on assets will decrease quite heavily and the price/book value suddenly becomes quite high, already sitting at over 3.
Moving forward the Technology And Workforce Solutions segment will be in focus. Being the most scalable and profitable segment I believe the management should continue pushing this part. Looking at the way the profitability trends within that will be important too.
Risks
One of the most prominent risks with AMN in my opinion would be that the management fails to properly capitalize and get ahead of competitors with their Workforce Solutions. If there are bigger players entering the space and securing contracts faster than AMN then I think the bottom line will take a big hit as gaining market share will require much more capital.
Cash Position (Earnings Report)
Looking at the short term I would expect that interest rates will start dragging earnings down a little bit too. The company has grown massively and I don't think the growth is over. Building up a good cash position is vital to help maneuver around interest rates and tougher economic environments. With AMN they have more than halved their cash position from 2021. Going from $180 million to $64 million instead. I don’t want this to continue and cause the company to dilute shares to raise further capital when necessary.
Valuation And Conclusion
Right now it seems that AMN is very undervalued compared to the sector average multiple and the growth they have had in the last year. With a forward TTM p/e of just under 8. There are expectations that the bottom line will slow down in the coming year as interest rates begin to take a chunk out of earnings. But the long-term runway seems quite clear for AMN with the adoption of smarter workforce solutions being a major tailwind for the company. What might have me a little bit worried is the already mention goodwill the company has. Amounting to almost $1 billion in the last report. I think this is unsustainably high and causes the price/book value to seem lower than what it might actually be.
Stock Price (Seeking Alpha)
But I still find the company to be at a good price to start a position. Even though previous positive results don't necessarily mean future results will be better I think a steady path of revenue growth is possible for AMN. Paying 10x EPS for a company that is also buying back shares at a good rate and has impressive ROTC seems fair to me. With all the estimated potential upside I will rate the company a buy right now.
For further details see:
AMN Healthcare Services Is Poised For Growth