AMN Healthcare Faces Market Turmoil Despite Solid Q3 Earnings
Falling sales and contracting margins worry investors
The stock price of AMN Healthcare (NYSE:AMN) took a significant hit on Friday, November 8, dropping around 30%. Although the company posted positive results for Q3, a contraction in margins raised concerns among investors. AMN Healthcare reported revenues of $687.5 million and earnings of $0.61 per share, exceeding the consensus estimates of $670 million and $0.57, respectively. Unfortunately, the current environment for hospital staffing remains challenging as demand plummets following the Covid-19 pandemic.
AMN Healthcare’s Revenue Journey
AMN Healthcare’s revenue more than doubled from $2.2 billion in 2019 to $5.2 billion in 2022, driven by a labor shortage and rising demand for healthcare professionals during the pandemic. However, the staffing sector experienced a downturn, resulting in sales dropping to $3.8 billion in 2023, and further declining to $3.1 billion over the trailing twelve months. For Q3, the reported sales reflected a 19% year-over-year decline. The company categorizes its sales into three segments: nurse and allied solutions, physician and leadership solutions, and technology and workforce solutions. Notably, sales in the physician and leadership solutions segment grew 13% year-over-year due to higher locum tenens staffing and contributions from the MSDR acquisition. Conversely, the technology and workforce solutions segment experienced an 11% decrease, while the nurse and allied solutions segment saw a troubling 30% drop, attributed to decreased demand.
Impact on Margins and Future Outlook
Along with declining sales, AMN’s adjusted EBITDA margin fell by 500 basis points year-over-year to 10.7% in Q3. This reduction in revenue and margin contraction led to adjusted earnings of $0.61, down from $1.97 in the same period last year. Looking ahead, AMN projects about a 15% year-over-year decline in Q4 revenues and an EBITDA margin of around 9.5%, indicating a 300 basis point drop compared to the previous year.
Stock Performance and Market Comparison
This year has been challenging for AMN stock, which is down over 60% year-to-date, while the broader S&P 500 index enjoyed a 25% gain. The stock’s historical performance has fluctuated significantly, with annual returns of 79% in 2021, a drop of 16% in 2022, and a further decline of 27% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, which includes 30 stocks, has performed consistently better than the S&P 500 throughout the same period, showcasing more stable returns.
Given the uncertainties in the macroeconomic environment and the ongoing decline in hospital staffing, will AMN continue to lag behind the S&P over the next 12 months or rebound? Currently trading below $30, AMN stock appears undervalued at 0.3x trailing revenue compared to its average price-to-sales (P/S) ratio of 1.0x over the past five years. However, this decline in valuation seems warranted given the sharp decrease in revenue. Additionally, weak demand for hospital staffing is likely to persist, further squeezing margins. Investors may find it more prudent to wait for revenue stabilization before considering a position in AMN stock.
| 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.
