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A solid year-to-date return of 170.5%, robust third-quarter 2012 results and rising estimates aided AMN Healthcare Services Inc. (AHS - Snapshot Report) to attain a Zacks #1 Rank (Strong Buy) status on December 22, 2012. Shares of this healthcare staffing and clinical workforce management solutions provider are now hovering close to its 52-week high of $12.17 attained on December 26.

The Rank Drivers

AMN Healthcare Services has outperformed the Zacks Consensus Estimate in 5 out of the last 7 quarters, while it reported in-line results in the remaining 2. Looking at the earnings surprise trend over the last 7 quarters, AMN Healthcare has topped estimates by an average of 117%, thereby justifying the Zacks Rank.

The company reported impressive third-quarter results on November 1, wherein earnings of 12 cents per share beat the Zacks Consensus Estimate by a couple of cents or 20% and surged 140% from 5 cents earned in the prior-year quarter. The quarter’s earnings were aided by improving demand and constructive implementation of strategy in its core staffing and recruitment services and workforce solutions.

Consolidated revenue of $243.9 million surpassed the Zacks Consensus Estimate of $239 million, and rose 7% year over year. Sales increased in the Nurse and Allied Healthcare Staffing (up 13%) and Physician Permanent Placement Services segments (up 9%), partly mitigated by a sales decline at Locum Tenens Staffing segment (down 6%). Gross profit jumped 9% to $69.6 million, whereas gross margin expanded 70 basis points to 28.5%.

Management now expects fourth quarter consolidated revenue between $240 million and $244 million, reflecting year-over-year growth of 8% to 10%. Gross margin is projected between 28% and 28.5%.

Impressive Estimates Revisions

The Zacks Consensus Estimate for 2012 rose 5.1% to 41 cents per share on the back of upward revisions in all the 5 estimates in the last 60 days. The current estimate implies a year-over-year jump of 195.7%.

For 2013, 4 out of 5 estimates were revised higher over the same time frame, lifting the Zacks Consensus Estimate by 8.2% to 53 cents per share. The current estimate suggests a year-over-year increase of 29%.

Premium Valuation

AMN Healthcare Services currently trades at a forward P/E of 27.22x, reflecting a 43% premium to the peer group average of 19.04x. Also, on a price-to-book basis, the shares trade at 3.06x, a substantial premium to the peer group average of 2.19x. However, on a price-to-sales basis, the stock trades at 0.54x, at a discount to the peer group average of 0.69x. Given its strong fundamentals, the premium valuation is justified, and is well supported by long-term earnings growth projection of 14%.

Company Description

Founded in 1985 and headquartered in San Diego, California, AMN Healthcare Services offers healthcare recruitment and clinical staff management solutions in the U.S., and operates under three segments – Nurse and Allied Healthcare Staffing, Locum Tenens Staffing and Physician Permanent Placement Services. The company provides staffing solutions for hospitals and other healthcare institutions, provides physicians on a temporary and permanent basis, and offers a recruitment process outsourcing program. The company has a market cap of $505.6 million, and primarily competes with Cross Country Healthcare, Inc. (CCRN - Snapshot Report) and On Assignment Inc. (ASGN - Snapshot Report).

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