The stock price of AMN Healthcare (NYSE:AMN), a healthcare workforce solutions and staffing services provider, plunged around 30% on Friday, November 8. Although the company reported an upbeat Q3, its margins contracted, which didn’t sit well with the investors. The company reported sales of $687.5 million and earnings of $0.61 per share in Q3, compared to the consensus estimates of $670 million and $0.57, respectively. AMN Healthcare is going through tough times, given the overall hospital staffing industry is experiencing a significant fall in demand after the Covid-19 pandemic.
AMN Healthcare revenue surged over 2x from $2.2 billion in 2019 to $5.2 billion in 2022, due to labor shortage and an increased demand for nurses and healthcare professionals during the pandemic. However, the hospital staffing has seen a cyclical decline since then and the company’s sales plunged to $3.8 billion in 2023, and further to $3.1 billion for the last twelve months. Looking at Q3, sales of $687.5 million reflected a 19% y-o-y decline. The company reports its sales under three segments – nurse and allied solutions, physician and leadership solutions, and technology and workforce solutions. The physician & leadership solutions sales were up 13% y-o-y, led by higher locum tenens (temporary position) and contribution from the MSDR acquisition. The technology and workflow solutions business saw an 11% fall in sales, while the nurse and allied solutions sales were down 30% y-o-y, due to lower demand.
Not only did the company see a large decline in sales, its adjusted EBITDA margin plunged 500 bps y-o-y to 10.7% in Q3. Lower revenues and a margin contraction resulted in the bottom line of $0.61 on an adjusted basis, compared to $1.97 in the prior-year quarter. Looking forward, the company expects around a 15% y-o-y decline in Q4 revenues and its EBITDA margin of around 9.5%, reflecting around 300 bps y-o-y decline.
AMN stock has had a rough year thus far. It is now down over 60% year-to-date, versus 25% gains for the broader S&P 500 index. The changes in AMN stock over the recent years have been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 79% in 2021, -16% in 2022, and -27% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment and the cyclical decline in hospital staffing, could AMN face a similar situation as it did in 2023 and underperform the S&P over the next 12 months — or will it see a recovery? At levels of under $30, AMN stock does look cheap from a valuation perspective. It is now trading at 0.3x trailing revenues, versus the stock’s average P/S ratio of 1.0x over the last five years. However, a decline in valuation multiple seems justified given the significant fall in sales. Furthermore, it looks like the hospital staffing demand is going to remain weak in the near term, and it may continue to pressure margins. We think investors willing to pick AMN stock will likely be better off waiting for the revenues to stabilize.
| Returns | Nov 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| AMN Return | -24% | -61% | -25% |
| S&P 500 Return | 5% | 25% | 167% |
| Trefis Reinforced Value Portfolio | 9% | 25% | 832% |
[1] Returns as of 11/11/2024
[2] Cumulative total returns since the end of 2016
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
