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Syneos Health (SYNH) Down 8.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Syneos Health (SYNH - Free Report) . Shares have lost about 8.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Syneos Health due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Syneos Health Q2 Earnings Top Estimates, Margins Down

Syneos Health reported second-quarter 2020 adjusted earnings per share of 58 cents, which beat the Zacks Consensus Estimate by 20.8%. However, the metric dropped 21.6% from the year-ago figure.

Reported earnings per share was 4 cents, marking a huge decline from the year-ago net earnings of 11 cents per share.

The year-over-year decline in adjusted earnings was the result of the impacts of COVID-19 on both Clinical Solutions and Commercial Solutions businesses, partially offset by benefit from cost management strategies, lower reimbursable out-of-pocket expenses, and lower interest expense.

Revenues in Detail

Revenues in the quarter totaled $1.01 billion. The top line declined 13.1% year over year on a reported basis (down 13.3% on an adjusted basis and 12.8% on a constant currency adjusted basis). However, it exceeded the Zacks Consensus Estimate by 0.9%. Adjusted revenues include revenues eliminated as a result of purchase accounting.

Segmental Details

The Clinical Solutions segment recorded revenues of $747.2 million in the second quarter; down 12.3% year over year on a reported basis (down 11.6% at CER). The downside resulted from reduced physical site monitoring visits and out-of-scope work related to COVID-19, the associated decline in reimbursable expenses, and the divestiture of the company’s lower-margin contingent staffing business as part of its portfolio rationalization.

Commercial Solutions revenues were $266.2 million in the reported quarter, down 16% year over year (adjusted revenues moved down 15.8% at CER). The decline was caused by the impact of COVID-19, including a decline in reimbursable expenses associated with reduced field team travel and lower investigator meeting expenses, as well as Deployment Solutions project start-up delays.

Margin Details

Direct cost (excluding depreciation and amortization) declined 12.2% to $805.9 million in the quarter. Despite that, gross margin contracted 89 basis points (bps) to 20.5%.

Selling, general and administrative expenses were down 5.3% year over year to $104.9 million.

Adjusted operating margin (excluding depreciation, amortization, transaction and integration-related, and restructuring and other expenses) contracted 174 bps from the year-ago quarter to 10.1%.

Financial Details

Syneos Health exited the second quarter of 2020 with cash and cash equivalents, and restricted cash of $343 million, compared with $335.9 million at the end of the first quarter. At the end of the second quarter, cumulative operating cash outflow was $155.2 million compared with $83.5 million a year ago.

Guidance

Following the withdrawal of its 2020 guidance in April, the company issued a fresh guidance this time around.

Full-year revenues are expected in the range of $4,470 million to $4,570 million while adjusted earnings per share is expected in the band of $3.16 to $3.38.

The current Zacks Consensus Estimate for 2020 revenues is pegged at $4.48 billion while the same for adjusted earnings per share stands at $2.97 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 14.87% due to these changes.

VGM Scores

Currently, Syneos Health has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Syneos Health has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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