A quick look at AHS

Investment Analysis Clubs Saul’s Investing Discussions
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It’s been a busy few weeks at work, and before October kicks off some more busy days, I thought I’d take this week and try to write about a few things that have been on my mind. I hope to write a post each day, and I welcome any comments.

Today, one of my recently volatile stocks, AMN Healthcare Services (AHS). This is a business that thrives when there is a demand for healthcare workers. As the boomers age, this trend seems like a no-brainer, and I like this Motley Fool-recommended company to take advantage.

Nonetheless, there are those who disagree. A recent SA short article claimed that the company has benefited from Obamacare tailwinds which are soon to end.

But with remarkable growth and a PE of 15, I don’t really see this as a particularly risky investment. That said, it is down 25% since late July. And now with a market cap of ~1.6B and TTM sales of 1.7B+, it’s looking pretty cheap. Also check out the growth, from a chart which I’ve updated from this excellent post by KC http://discussion.fool.com/ahs-32274514.aspx.


          Revenue   EPS
Jun 2015   240.9   0.16
Sep 2014   264.4   0.19
Dec 2014   279.6   0.18
Mar 2015   327.5   0.21
Jun 2015   350.0   0.38
Sep 2015   382.9   0.48
Dec 2015   402.6   0.47
Mar 2016   468.0   0.60
Jun 2016   473.7   0.61

35% revenue growth and 61% EPS growth in the June quarter was pretty nice. They’ve had some pretty good acquisitions, which according to this article, http://www.fool.com/investing/2016/08/05/organic-growth-and-…, account for 16% of the growth this quarter. But they also had organic growth of 19%.

The upcoming quarter will be a tougher comp, but they’re still expected to grow revenue 23% and EPS 15%, and hopefully they’ll beat those numbers.

But as we all know, the question is what comes next? I think this company will continue to succeed and that this is an attractive entry point. But what say others? Bargain or bust?

Bear

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Paul - I’ve been looking at this for years and it just stays expensive and keeps getting more expensive. Thanks for flagging the recent pull back - it could be the opportunity to enter but is still is 7x ahead of where it was 4 years ago. I also agree on the long term growth potential.

I guess the one fear factor is that both Clinton and Trump are agreed on targeting healthcare - admittedly Pharma is the public enemy number one with their price rises etc but still - a lot of private healthcare could get hit as whichever wins re-arranges the furniture and tries to squeeze the system.

Right now I would not like to be in pharma and my private healthcare provider stocks are all over here in Asia, well away from Clinton or Trump.

Admittedly I missed out on the REIT boom this year but if interest rates rise and Clinton or Trump get heavy on the health care sector it could be a rough ride.

The one pharma/healthcare I might consider is where it is consumer elective out of pocket e.g. Allergan with Botox and eyecare.

Ant

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Thanks Ant,

I agree completely about regulated healthcare (Insurance, Pharma, Etc), but this is a staffing company. The demand for medical professionals should be there regardless of who’s in office, etc. The market may see things differently, of course, but any further dips just create even better entry points, in my opinion.

Bear

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Agree Bear but the US healthcare system is so messed up there might be a ton of unintended consequences where this company might be caught up.

Just as a for instance, what if Trump bans Mexican and Filipino health workers - what happens to the supply and staffing with medical professionals. Half of all the new supply of medical professionals in the US are from the Philippines.

What if the healthcare act revision by either candidate crashes budgets and cannot afford access to staffing…

You guys know a lot more about the US healthcare system from a real world perspective but what I do know is that it’s a mess, everything is interconnected and everyone has their snouts in the trough and probably staffing companies too.

Ant

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I’d like to understand their debt a little better.

Their 2015 Annual Report says “As of December 31, 2015, our total debt outstanding, less unamortized fees, equaled $218.5 million.”

A recent fool.com article says “total debt outstanding of $413 million. While the company’s debt increased from $377 million at the end of the first quarter”

Their debt is increasing quite rapidly.

They just launched a $300M offering (http://amnhealthcare.investorroom.com/2016-09-19-AMN-Healthc…), which if I read this correctly, is all to help pay their current debt (“The Company intends to use the proceeds from the private offering to (i) repay (1) $113.8 million of certain existing term loan indebtedness under the Credit Facilities, and (2) $182.5 million under the revolving portion of its Credit Facilities and (ii) pay fees and expenses related to the offering.”

Is this a manageable amount of debt growth?

Graham.

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Is this a manageable amount of debt growth?

Seems ok to me. Perhaps the Fool’s version is not backing out unamoritized fees…but I don’t think it’s grown that much.

Bear