One of the key aspects of our Aging of the Population investing theme centers on the aging of the baby boomer generation and the corresponding needs and pain points. Looking at the domestic population, no matter the data or the source, it all points to the same thing -- more people are over age 65 than ever before. Moreover, the forecasts call for this to continue:
-- By 2030, one in five Americans will be a senior citizen, nearly double the 12% level in 2000, according to "The State of Aging and Health in America," from the U.S. Centers for Disease Control and Prevention (CDC).
-- The U.S. Census Bureau forecasts that by 2050, an estimated 88.5 million people in the U.S. will be 65 or older -- to put that into perspective, that's roughly 27% of today's population.
As much as we would like to, there is no way to slow the clock when it comes to aging, at least not yet. At the same time, we are also living longer, with average life expectancy for men and women between 75 and 85 years, compared to 50 years in 1900, per CDC data.
Now for the real whammy: According to the National Council on Aging, 80% of older adults have at least one chronic condition, and 68% have at least two. Combined with the underlying demographic shift, this will place far greater demands on the domestic health care system in the coming years.
The Aging Population and Chronic Conditions
While many tend to focus on any one of the various aspects of the health care systems, the combination of the aging population and chronic conditions is a demand driver for doctors and nurses. But here's the problem: The U.S. has been dealing with nursing constraints over the last few decades. Viewed against the aging population and an aging nursing workforce with limited capacity at nursing schools, that constraint is looking more and more like an outright shortage.
According to data published by the American Nurses Association, by 2022 there will be far more registered nurse jobs available than any other profession, at more than 100,000 per year. With more than 500,000 seasoned RNs anticipated to retire by the end of 2022, the U.S. Bureau of Labor Statistics projects the need for 1.1 million new RNs for expansion and replacement of retirees, and to avoid a nursing shortage. To give an idea as to how dire the situation really is, in September 2021, the American Nurses Association called on the U.S. Department of Health and Human Services to declare a nurse staffing shortage.
But it's not just nurses that are in high demand. According to data published today by the AAMC (Association of American Medical Colleges), the United States could see an estimated shortage of between 37,800 and 124,000 physicians by 2034, including shortfalls in both primary and specialty care. Between now and then, the domestic population is projected to grow by 10.6% to ~363 million people while the number of those aged over 65 will grow more than 42%. That underlying mix shift is expected to drive demand for physician specialties that predominantly care for older Americans. At the same time, more than two of every five active physicians in the U.S. will be 65 or older within the next decade, leading to staffing concerns.
And while it may seem the pain point is several years out, in a recent publication, the U.S. Health Resources & Services Administration estimated that an additional 13,758 primary care physicians and 6,100 psychiatrists would have been needed to remove Health Professional Shortage Area designations for areas with primary care and mental health shortages. One recent survey conducted by the AAMC found 35% of survey respondents said they or someone they knew had trouble finding a doctor in the past year or two, up from 25% in 2015.
AMN Healthcare
Searching for a solution to that pain point brings us to Bullpen resident AMN Healthcare (AMN) , a company whose business centers on talent solutions for the healthcare sector in the U.S. While the company's revenue stream is tied to talents solutions, it reports in three business segments:
- Nurse and Allied Solutions, which generated 61% of revenue for the first nine months of 2021 and ~59% of its operating profit
- Physician and Leadership Solutions - 24% and 13%, respectively
- Technology and Workforce Solutions - 15% and 28%, respectively
This means that the majority of the company's business speaks to the shortages and pain points outlined above while the Technology and Workforce solutions centers on language services, vendor management systems, telehealth and other outsourced solutions.
In terms of revenue and EPS, given the nature of the company's business model 2020 was a difficult year, but even during the initial wave of the pandemic it remained nicely profitable. We saw a snap back in revenue and EPS in 2021, with prospects for EPS of $5.56 in 2022 vs. $2.40 in 2019. Tracing back the share price, excluding the wide swing in 2020, it peaked at an average P/E multiple near 22x, which drives an implied price target near $125. In terms of the shares bottoming out, over the 2017-2021 period, that occurred at an average multiple of 16x earnings, which suggest a potential bottom in the shares at or near $90.
We'd note that implied $125 price target is the low end of the current $124-$137 price target range for the shares. While some might color us conservative, our preference is to raise our target on signs the company's revenue and EPS prospects are growing faster than previously expected. In terms of the company's balance sheet, it exited September 2021 with $137 million in cash and 842 million in debt. We'd call out the robust cash flow generation to be had at the company given its business model, which easily covers it interest expense nut.
As the market finds its footing, we'd look to start adding AMN shares to the portfolio. Stay tuned for more...