Overview
AMN reported a relatively inline quarter after benefitting from the initial surge in COVID-19 cases. In recent weeks our tracker has been flagging the weakening environment. Initially, COVID-19 generated incremental demand primarily in the ICU but as the pandemic spread, elective procedures were cancelled and along with the closing of physician offices. For other companies, April has marked the bottom. For AMN trends are expected the continue to weaken throughout the quarter. The pace of new listings appears to have bottomed, but as of yet remain well below first quarter levels with only a modest inflection off the lows through May 10. AMN staffing is likely to remain under pressure into 3Q20. While the economy will reopen, the negative economic impact on health care utilization will extend for several quarters, in our view.
VALUATION | AMN may be reverting back to its former high correlation with revenue trends, although compared to the last downturn AMN has changed its composition dramatically, likely for the better as they head into another downturn. EV/Sales at 0.8X is at the low end of their historical range. AMN decided to shuffle their business units (again) which will obscure some of the underlying trends. AMN guided 2Q20 to $550-$570M versus consensus of $610M. The company guided June 2020 to be below prior year as trends deteriorate throughout the quarter resulting in an even deeper cut to 3Q20 to $535M from $620.
CATALYSTS | We will update the tracker data weekly going forward as an indicator of AMN's trend. The tracker should also be a useful indicator demand generally, including signalling a recovery in elective surgery. We will also keep a close eye on COVID-19 case volume. As states reopen case volume is likely to increase over the coming weeks making a return to elective procedures and subsequent demand for temporary nurse staffing far less likely.
RISKS | One risk to the short thesis from here is the client demand for a more flexible staffing model as they re-open give the uncertainty facing providers in the post-COVID world. For now we are assuming medical utilization likely remains below prior year levels, keeping capacity utilization low, and demand for temp staffing even lower.
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