Monday, May 24, 2010

Transaction Alert: Bought AHS

When I sold SandRidge Energy (SD) last Friday I used the proceeds to immediately buy AMN Healthcare Services (AHS). I purchased 1200 shares, for a total outlay of about $9,600. The stock is currently at $8 a share, but I think it's worth about $15 to $20.

AHS is a staffing company for nurses and other healthcare workers. They are somewhat economically sensitive, and as a result their revenue fell from $1.2B in 2008 to $760MM in 2009. However, AHS generally produces pretty stable EBITDA margins in the high single digits, for 2008 their margin was 7.9% and for 2009 it was 7.5%.

I expect their revenue to rebound to about $1B within a year or two and probably grow at 5% to 10% thereafter. At $1B in revenue I conservatively expect them to generate about $70MM of EBITDA. With this type of margin/growth profile I think a EV/EBITDA ratio of 10x is quite reasonable, which implies an EV (enterprise value) of $700MM. Their current EV is just over $300MM, so it's really not much of a leap to get to my fair value range of $15 to $20 a share.

From a high-level perspective this new purchase did not alter my portfolio very significantly. I made the AHS purchase with cash from the sale of SD, so I'm still about 30% cash.