AMN Healthcare Earnings: Maintaining Fair Value as Expected Decline Slows

Narrow-moat AMN Healthcare AMN posted solid first-quarter results, as the healthcare staffing shortage continues. Temporary staffing demand continues to decline from its pandemic peak in the first quarter of 2022, so this quarter’s flat sequential top line performance was a positive result, though we think demand has yet to bottom out. We are maintaining our fair value estimate of $102 per share.

Quarterly revenue was down down 27% year over year, though we are particularly focused on sequential results due to the low utility of comparing year-over-year results after the temporary pandemic-driven surge in staffing demand in the year-ago period. Gross margin was 50 basis points lower largely due to higher wages in the nursing and allied segment. In contrast, operating margin rose by 110 basis points sequentially, due to some broad fixed cost cuts, and lower credit expense as well.

The potential for temporary workers to transition to permanent positions, which we wrote about in a previous note, was one topic in the earnings call. Our observation was that during the Great Recession, volume fell sharply for healthcare staffers not due to decreased healthcare utilization but due to a shift toward permanent positions from temporary ones. Although we do not anticipate a major recession looming, the previous recession highlighted the potential for shifts between temporary and permanent roles to heavily influence revenue. Currently we believe there is higher demand for permanency among both employers and employees than in recent years; hospitals want to reduce sky-high temporary labor expenses while nurses are seeking better job conditions and stability. That said, we don’t think AMN Healthcare’s revenue will fall below prepandemic levels, as the nursing shortage is what drove the recent boom in temporary staffing demand in the first place. So, as long as the nursing shortage persists, we expect temporary nurses to remain in relatively high demand relative to historic norms.