AMN Healthcare Posts Fair Q4 Results While Contract Labor Enters Expected Decline

Narrow-moat AMN Healthcare AMN posted relatively mild fourth-quarter results as temporary staffing volume begins to decline behind the scenes. In 2022, the healthcare staffing industry saw bill rates fall from a pandemic peak that was unmaintainable for healthcare facilities. In 2023, we expect a decline in volume to catch up with the drop in bill rates as hospitals streamline costs. Though the quarter was slightly less negative than we expected, management expects headwinds that are consistent with what we’ve modeled, so we maintain our fair value estimate of $102 per share.

In our previous note this month, we explained that temporary labor demand can decline during economic slowdowns as hospitals increase permanent staff to tame high temporary labor costs. This appears to be playing out, as facility operators like HCA and Tenet Healthcare were able to materially reduce temporary labor costs during the fourth quarter. Although AMN posted flat results in its nurse and allied solutions segment this quarter, we will likely see the full effect of the temporary labor reduction next quarter, and likely more, since further reductions are expected by facility operators. We expect to see declines in the locum tenens and vendor management system businesses, as well.

On the other hand, the current economic slowdown differs from those prior due to the serious healthcare labor shortage. We think this puts a higher floor on how far facilities can lower their contract labor costs, since there just aren’t enough workers to go around. In addition, AMN’s high-margin language services business has posted 23% growth year over year, partially offsetting declines in staffing. This is consistent with what we’ve heard from facility operators, which are looking to auxiliary technology to assist strained employees with handling a normal patient capacity.