EUR 850.00 For Business Accounts Only

Morningstar | AMN Updated Forecasts and Estimates from 10 Apr 2019

AMN Healthcare Services wrapped up the year just short of our estimates for 2018, but this wasn’t material enough to shift our valuation, which remains at $26 per share. We see little to change our thinking on AMN’s narrow economic moat. The firm benefits from mild network effects that are related to the quality and reliability of its healthcare workers and relationships with premium providers, which in turn attracts high-quality healthcare professionals. While we think it is extremely difficult to carve out a wide moat in the staffing industry, AMN’s narrow one isn’t anything to sneeze at.

In keeping with the sunny economic conditions and upward trend in healthcare spending, AMN posted solid 7% growth on the top and bottom lines for 2018--slightly short of the 8% we’d projected. Nonetheless, shares continue to trade significantly above our intrinsic value, which is based on cash flows projected over the next 10 years and include assumptions for two years of declines within the full business cycle. The last time we saw steep, dramatic declines, it was against the backdrop of the Great Recession and nearly 10 years have passed since then. As we’ve discussed previously, investors should be aware of the cyclical nature of this business, that isn’t always reflected in the share price, which may assume the recent robust performance will continue for the foreseeable future.

The key leading indicator--higher-level, costlier staffing segments--have seen declines accelerate sequentially in the fourth quarter. The physician staffing segment saw quarterly revenue fall 24%, while operating profit also fell by 20 percentage points. We think this underscores the prospect of having reached the peak in this particular cycle. We expect these headwinds should grow stronger over the near and midterm.