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Syneos Health (SYNH) Up 11.8% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Syneos Health (SYNH - Free Report) . Shares have added about 11.8% 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 (SYNH - Free Report) Q2 Earnings Top Estimates, 2021 View Up

Syneos Health Inc. (SYNH - Free Report) reported second-quarter 2021 adjusted earnings per share of 97 cents, which exceeded the Zacks Consensus Estimate by 3.2%. The metric increased 67.2% from the year-ago figure.

GAAP earnings per share was 40 cents, marking a significant improvement from the year-ago figure of 4 cents.

Revenues in Detail

Revenues in the quarter totaled $1.28 billion. The top line surged 26.6% year over year on a reported basis (up 23.6% at constant exchange rate or CER). Moreover, it surpassed the Zacks Consensus Estimate by 0.8%.

The year-over-year uptick resulted from a strong performance by the Clinical Solutions and Commercial Solutions businesses.

Segmental Details

The Clinical Solutions segment recorded revenues of $991.1 million in the second quarter, up 31.1% year over year on a reported basis and 27.5% at CER. The upside resulted from the impact of acquisitions and increased project start-up activities across both the company’s COVID and non-COVID projects. This was partially mitigated by contingent staffing divestiture in 2020.

Commercial Solutions revenues were $291.5 million in the reported quarter, up 13.2% year over year and 12.2% at CER. The robust growth in this segment was driven by broad double-digit expansion across core commercial businesses, with particular strength in consulting and a 75 basis point tailwind from reimbursable expenses. The divestiture of Medication Adherence in 2020 resulted in an approximate 250 basis point headwind to Commercial Solutions reported revenue growth.

Margin Details

Direct cost (excluding depreciation and amortization) rose 23.2% to $992.6 million in the quarter. Gross margin expanded 214 bps to 22.6%.

Selling, general and administrative expenses were up 33.5% year over year to $144.7 million.

Adjusted operating margin (excluding depreciation, amortization, and restructuring and other expenses) expanded 155 bps from the year-ago quarter to 11.3%.

Financial Details

Syneos Health exited the second quarter of 2021 with cash and cash equivalents, and restricted cash of $261.1 million compared with $264.7 million at the end of first-quarter 2021. Long-term debt at the end of the second quarter of 2021 stood unchanged at $2.86 billion when compared with the end of first-quarter 2021.

The company repurchased $73 million of common stock in the quarter and $182.5 million is still available for share repurchase under the company’s current plan.

Cumulative net cash provided by operating activities at the end of the second quarter of 2021 was $215.8 million compared with net cash inflow of $155.2 million in the year-ago period.

Cumulative capital expenses (in the form of purchases of property and equipment) incurred by the company at the end of the second quarter of 2021 was $22.3 million compared with $30.1 million a year ago. Accordingly, cumulative free cash inflow at the end of the second quarter of 2021 was $193.5 million versus the year-ago free cash inflow of $125.1 million.

2021 Guidance Raised

Syneos Health has updated its revenue and EPS guidance for the year 2021, taking into account the pandemic-led impact, existing backlog, current sales pipeline, trends in cancellations and delays, and the company’s ‘ForwardBound’ initiative.

The company expects its full-year revenues to be in the range of $5,180-5,300 million, a slight improvement from the April-announced guidance of $5,125-$5,325 million, reflecting growth of 17.3-20%. The Zacks Consensus Estimate for the same is currently pegged at $5.23 billion.

The adjusted EPS for the year is expected in the band of $4.25-$4.43, reflecting growth of 24.6-29.9% year over year (up from the earlier provided range of $4.17-$4.42). The Zacks Consensus Estimate for the same is currently pegged at $4.32.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.29% due to these changes.

VGM Scores

At this time, Syneos Health has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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 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.


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