THE HEDGEYE EDGE
AMN Healthcare Services (AHS) was a great stock pick from 2013 until its 2016 peak. During that period, the company's fundamental performance accelerated and the stock price doubled.
AHS is a leader in the Nurse Staffing industry and has secured contracts with some of the largest Hospital Systems in the country. However, we believe the tailwinds are fleeting, and that the Affordable Care Act (ACA) has been responsible for much of the good news for AHS. For the US Medical Economy broadly, millions of newly insured have gained access to healthcare services and entered the delivery system with pent-up demand. The ACA-driven incremental demand occurred over a compressed period of time, exacerbating short-term staffing deficits. This created what we believe was a temporary increase in volume and pricing at AHS.
We expect shares to trade back to the low-$20s as organic growth slows and then declines over the next 6-9 months.
INTERMEDIATE TERM (TREND)
The time is now, as we expect a material deceleration in healthcare consumption to drive lower demand for temporary staffing services over the next 6-9 months. This will pressure organic growth at AHS, which we believe could be negative as soon as 4Q16 and continue into 2017. Consensus appears to be modelling high single-digit organic growth for 2017.
We are tracking several data points with Healthcare Job Openings (JOLTS) providing the best indicator of demand and is widely followed as an indicator for AHS. Preceding the trend in JOLTS, however, is growth in the insured population across all payor types, which after the huge ACA boost, is now reverting back to pre-ACA growth rates in-line with broader demographic trends.
This unprecedented boom and bust environment for the US Medical economy is reflected in both the absolute level in Healthcare JOLTS and Healthcare JOLTS as a percentage of Healthcare Employment, both of which remain elevated at multi-standard deviation highs. Anecdotally, hospital admissions are trending into negative territory in 3Q16 for the first time since 2013. This confirms our #ACATaper thesis and will cause Hospitals to pull back on hiring. We believe this will begin with the temporary staffing AHS provides.
Our catalysts on the short side will be monthly updates on Employment and JOLTS, along with earnings guidance.
LONG TERM (TAIL)
AHS is one of our shorter duration ideas. AHS is a well-run business, fundamentally strong and a leader in its space. However, we don’t believe the current valuation accurately reflects slowing and potentially negative organic growth. At some point in the next 12-18 months, it is quite possible we end up being long the name depending on the valuation and how our data is trending. Until then, we will remain short.
ONE-YEAR TRAILING CHART