A month has gone by since the last earnings report for Syneos Health (
SYNH Quick Quote SYNH - Free Report) . Shares have added about 4.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Syneos Health due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Syneos Health Posts in-Line Q4 Earnings, Margins Up
Syneos Health reported fourth-quarter 2020 adjusted earnings per share of $1.11, which was in line with the Zacks Consensus Estimate. The metric increased 7.8% from the year-ago figure.
The year-over-year increase in adjusted earnings was the result of the company’s synergies and cost management strategies, including ForwardBound, and lower reimbursable out-of-pocket expenses. However, this was partially offset by the pandemic-induced impacts.
GAAP earnings per share was 87 cents, marking a 1.2% improvement from the year-ago figure.
Full-year adjusted earnings per share was $3.41, reflecting a 5.6% increase from the year-ago period. Again, the metric was in line with the Zacks Consensus Estimate.
Full-year GAAP earnings per share was $1.83, reflecting a surge of 46.4% from the year-ago period.
Revenues in Detail
Revenues in the quarter totaled $1.14 billion. The top line declined 6% year over year on a reported basis (down 6.1% on an adjusted basis and 7% on a constant currency adjusted basis). It, however, surpassed the Zacks Consensus Estimate by 0.5%. Adjusted revenues include revenues eliminated as a result of purchase accounting.
The year-over-year decline was due to dull performances by both Clinical Solutions and Commercial Solutions. Revenues were less than expected in the quarter due to the decrease in reimbursable out-of-pocket expenses.
The Clinical Solutions segment recorded revenues of $855.6 million in the fourth quarter; down 4.9% year over year on a reported basis (down 5.9% at CER adjusted). The downside resulted from the impacts of COVID-19, including the related decline in reimbursable out-of-pocket expenses, and the second-quarter divestiture of the company’s contingent staffing business. This was partially mitigated by the positive impact of fluctuations in foreign currency exchange rates and the Synteract buyout.
Commercial Solutions revenues were $284.5 million in the reported quarter, down 9.3% year over year (down 9.9% at CER). The decline was caused by the impact of COVID-19, including a disproportionate decline in reimbursable out-of-pocket expenses as well as delays in new project starts. The negative impacts of the divestiture of the company’s medication adherence business in November 2020 also dented segmental revenues.
Direct cost (excluding depreciation and amortization) declined 8.6% to $848 million in the quarter. Gross margin expanded 211 basis points (bps) to 25.6%.
Selling, general and administrative expenses were down 3.5% year over year to $108.4 million.
Adjusted operating margin (excluding depreciation, amortization, transaction and integration-related, and restructuring and other expenses) expanded 187 bps from the year-ago quarter to 16.1%.
Syneos Health exited 2020 with cash and cash equivalents, and restricted cash of $272.2 million, compared with $163.7 million at the end of 2019. Total debt at the end of 2020 was $2.90 billion compared with $2.61 billion at the end of 2019.
Cumulative net cash provided by operating activities at the end of 2020 was $425.5 million compared with $318.5 million in the year-ago period.
Syneos Health has upped its revenue outlook and initiated adjusted earnings per share guidance for the year 2021.
The company expects its full-year revenues to be in the range of $5,125 million-$5,325 million (up from the earlier-issued guidance range of $4,900 million-$5,100 million, which excluded the announced acquisition of Synteract). The Zacks Consensus Estimate for the same is currently pegged at $5.22 billion.
The adjusted earnings per share for the year is expected in the band of $4.09-$4.38. The Zacks Consensus Estimate for the same is currently pegged at $4.21.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -22.51% due to these changes.
At this time, Syneos Health has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Syneos Health has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.