We came across a bullish thesis on AMN Healthcare Services, Inc. (AMN) on Directionally Correct Research’s Substack by Will Powers. In this article, we will summarize the bulls’ thesis on AMN. AMN Healthcare Services, Inc. (AMN)'s share was trading at $26.12 as of Jan 14^th. AMN’s trailing and forward P/E were 18.27 and 14.51 respectively according to Yahoo Finance.

AMN Healthcare, a leading provider of healthcare staffing solutions, saw a significant surge in demand during the COVID-19 pandemic but is now grappling with the normalization of demand and margins post-pandemic. Despite facing challenges, signs suggest the company is nearing a bottom, with stabilization in bill rates and a gradual recovery in demand. The company’s most substantial segment, Nurse and Allied Staffing (N&A), which comprises roughly 65% of sales and 50% of EBITDA, is seeing a return to more stable conditions. Bill rates, which had soared during the pandemic, have stabilized, with slight increases reported in recent quarters. Although bill rates remain lower than the pandemic highs, a modest uptick is expected, driven by a convergence of supply and demand in the staffing market.

AMN's N&A segment is directly influenced by bill rates, order volume, and fill rates. The company has already seen a decline in open nursing roles compared to the pandemic peak, but a strong increase in staffing requests has been noted in recent months, indicating that demand for temporary healthcare workers is picking up, albeit still well below 2019 levels. Additionally, fill rates, which had been impacted by declining clinician compensation expectations, are showing signs of improvement. As bill rates and clinician compensation expectations align, fill rates should increase, driving revenue growth in the N&A segment.

Beyond N&A, AMN’s other segments, including Physician & Leadership Solutions and Technology & Workforce Solutions, are also poised for growth. The P&L business, which provides temporary staffing for physicians, is expected to show more resilience than N&A due to physicians' closer link to revenue generation for providers. T&WS, which includes language services and a Vendor Management System for staffing logistics, is projected to continue growing at a double-digit rate, contributing stable and high-margin revenue. This diversification into more stable, technology-enabled services should help bolster AMN’s overall financial stability.

Looking ahead, AMN’s EBITDA is expected to recover to $340M by 2027, with free cash flow per share reaching $4.70. Assuming a return to historical valuation multiples, AMN’s stock could appreciate to over $50, offering a high-20% IRR over the next three years. The company’s investment in technology and its diversification into higher-margin, more stable businesses position it well for a gradual recovery, even as the staffing market normalizes.

AMN Healthcare Services, Inc. (AMN) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 25 hedge fund portfolios held AMN at the end of the third quarter which was 21 in the previous quarter. While we acknowledge the risk and potential of AMN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.