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Syneos Health (SYNH) Clinical Solutions Arm Grows Amid Cost Woe

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Syneos Health, Inc. (SYNH - Free Report) has been gaining from strength in the Clinical Solutions and Commercial Solutions segments. However, mounting operating expenses and macroeconomic woes persist. The stock has a Zacks Rank #3 (Hold).

Syneos Health has outperformed its industry over the past year. The stock has gained 9.7% against the industry’s 49.6% fall.

Syneos Health ended the fourth quarter of 2021 with better-than-expected earnings. The year-over-year improvement in earnings and revenues looks impressive. Robust performance by the Clinical Solutions and Commercial Solutions segments is encouraging as well. The broad-based growth in Deployment Solutions and consulting led to growth in the Commercial Solutions arm. The continued strength in the company’s SMID customer segment and oncology business buoys optimism.

During the reported quarter, the company recorded overall net new business awards of $843.5 million, including reimbursable out-of-pocket expenses, which resulted in book-to-bill ratios of 0.34 times for Clinical Solutions and 1.47 times for Commercial Solutions. Strong solvency with a moderately leveraged balance sheet is another upside.

Despite the near-term COVID-19 challenges, Syneos Health remains confident about the long-term strength of its business given the robust backlog and its unique market position.

Meanwhile the company’s COVID-19 related response is controlled by Business Continuity Transition Management Office (TMO), which combines the project management discipline of the Trusted Process with well-established transition management leadership.

In September 2021, Syneos Health and Ride Health formed a strategic partnership to provide clinical trial participants with non-emergency medical transportation. This collaboration will facilitate a comprehensive transportation program for Syneos Health trials in the United States to expand access, reduce the burden and enhance patient retention while accelerating clinical trial recruitment for sponsors.

On the flip side, Syneos Health’s revenues for fourth-quarter 2021 missed the Zacks Consensus Estimate. The top line was impacted by foreign exchange headwinds, lower reimbursable expenses in Clinical Solutions and faster-than-anticipated wind-down of certain COVID-related projects.

During the quarter, the company’s selling, general and administrative (SG&A) expenses rose 23.6% year over year. These escalating operating expenses led to a 50 bps contraction in adjusted operating margin, raising apprehension. Meanwhile, growth in Commercial Solutions revenues included a 300 bps impact of the divestiture of the Medication Adherence business in 2020.

Further, deterioration in short-term cash levels is worrisome as well. Tough macroeconomic conditions, stiff competition and foreign exchange fluctuations persist.

Key Picks

A few better-ranked stocks in the broader medical space are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Bio-Rad Laboratories, Inc. (BIO - Free Report) .

McKesson, carrying a Zacks Rank #2 (Buy), reported third-quarter fiscal 2022 adjusted EPS of $6.15, which beat the Zacks Consensus Estimate of $5.38 by 14.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 49.7% compared with the industry’s 4.7% growth in the past year.

AMN Healthcare, carrying a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.

AMN Healthcare has outperformed its industry over the past year. AMN has gained 23.8% versus the 62% industry decline.

Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. It currently has a Zacks Rank #2.

Bio-Rad has an earnings yield of 2.3%, which compares favorably with the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.

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