Back to top

Image: Shutterstock

Syneos Health (SYNH) Sell-Off Appears Strategic Amid Margin Woes

Read MoreHide Full Article

Syneos Health has been gaining from partnerships and a strong Clinical Solutions segment. The company’s recent decision to sell itself seems strategic. Syneos Health operates in a strict regulatory environment, which is a concern. The stock carries a Zacks Rank #3 (Hold).

Concurrent with the first-quarter 2023 earnings release, Syneos Health announced that it is to be acquired by a group of private equity firms in an all-cash transaction of approximately $7.1 billion. The consortium comprises Elliott Investment Management, Patient Square Capital and Veritas Capital. The transaction is expected to be completed in the second half of 2023, subject to the approval of Syneos Health’s shareholders and the satisfaction of other customary closing conditions, including regulatory approvals.

From shareholders’ perspective, the sale price represents a 24% premium to Syneos Health’s unaffected closing stock price on Feb 13, 2023, the last trading day prior to media speculation regarding the selloff.

Meanwhile, Syneos Health ended the first quarter of 2023 with better-than-expected earnings and revenues. The robust performance of the Commercial Solutions business contributed to the quarter’s top line. SYNH’s enhanced clinical operating model and differentiated strategy continued to receive positive feedback from customers. The company has been prioritizing strategic long-term growth through accelerated investments in transformation and profitability initiatives and relentless customer focus.

On the flip side, Syneos Health has underperformed its industry over the past year. The stock has declined 44% compared with the industry’s 28.1% fall. During the first quarter of 2023, excluding reimbursable out-of-pocket expenses, Syneos Health reported a year-over-year decline of 15.1% in Clinical Solutions and a year-over-year decline of 1.3% in Deployment Solutions businesses. The company also experienced delays in large pharma award decisions, with net awards being impacted by greater-than-normal delays.

Meanwhile, the contraction of margins does not bode well. Direct costs (excluding depreciation and amortization) rose 4.2% in the quarter. The gross margin contracted 207 basis points (bps) to 19.8%. SG&A expenses increased 15.2% year over year. The adjusted operating margin (excluding depreciation, amortization and restructuring and other expenses) contracted 348 bps from the year-ago quarter to 7.9%.

Key Picks

Some better-ranked stocks in the broader medical space are Zimmer Biomet (ZBH - Free Report) , Penumbra (PEN - Free Report) and Hologic, Inc. (HOLX - Free Report) .

Zimmer Biomet has an earnings yield of 5.71% compared to the industry’s -2.36%. Zimmer Biomet’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.38%. Its shares have risen 10.8% against the industry’s 30% decline in the past year.

ZBH sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Penumbra, sporting a Zacks Rank #1 at present, has an estimated growth rate of 64.1% for 2024. Penumbra shares have risen 129.4% compared with the industry’s 2.6% increase over the past year.

PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.

Hologic, carrying a Zacks Rank #2 at present, has an earnings yield of 4.92% against the industry’s -7%. Shares of HOLX have risen 4.5% compared with the industry’s 2.6% growth over the past year.

Hologic’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.

See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report FREE:

Hologic, Inc. (HOLX) - free report >>

Zimmer Biomet Holdings, Inc. (ZBH) - free report >>

Penumbra, Inc. (PEN) - free report >>

Published in