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Syneos Health (SYNH) Hits a 52-Week High: What's Driving It?

Syneos Health, Inc. SYNH scaled a new 52-week high of $93.63 on Aug 30, before closing the session marginally lower at $93.57.

The company’s shares have charted a solid trajectory in recent times, appreciating 51.4% over the past year versus the 16.7% decline of the industry it belongs to and the 29.2% surge of the S&P 500 composite.

Over the past five years, the company registered earnings growth of 10.9%, way ahead of the industry’s 6.1% rise and the S&P 500’s 2.8% increase. The company’s projected growth rate of 16.3% for the next year, although lagging the industry’s growth projection of 17.1%, is pegged above the S&P 500’s 13.1% increase estimation.

Syneos Health exited the second quarter of 2021 with better-than-expected results. At present, the company operates under two business segments: Clinical Solutions and Commercial Solutions. The company delivered an outstanding quarterly performance, with exceptionally strong year-over-year revenue growth across each of its reporting segments. Strength in consulting services and increased project start-up activities across both COVID-19 and non-COVID projects buoy optimism. A good solvency position bodes well for the stock.


Image Source: Zacks Investment Research

Let’s delve deeper.

Key Drivers

Q2 Upsides: Syneos Health exited the second quarter of 2021 with better-than-expected revenues and earnings. The year-over-year improvement in earnings and revenues looks impressive. Strong performance by the Clinical Solutions and Commercial Solutions segments is encouraging. The company’s strength in consulting services and increased project start-up activities across both COVID-19 and non-COVID projects buoy optimism. Expansion of both margins also bodes well. Faster recovery in reimbursable expenses is another upside. The company has raised its guidance for 2021, which is indicative that this growth momentum will continue.

Strong Clinical Solutions Arm: The market is upbeat about Syneos Health’s Clinical Solutions business, which registered year-over-year revenue growth of 31.1% on a reported basis and 27.5% at CER. The upside resulted from increased project start-up activities across both the company’s COVID-19 and non-COVID projects, and contributions from buyouts made in 2020. The Clinical Solutions arm also posted a solid second quarter of net awards (fueled in part by continued strength in the SMID segment) and backlog growth (up 21.5%). Further, the company has been witnessing continued improvement in the pace of both patient enrollment and start of new clinical trials. During the second quarter, the company launched two initiatives to enhance patient engagement, involving the establishment of a dedicated decentralized trials site advocacy group focused on new technology optimization and the launch of Patient Voice Consortium.

Partnerships to Add Value: Syneos Health has been progressing well with its partnership deals. During the earnings call for second-quarter 2021, the company noted it partnered with Aetion to expand its dynamic assembly network of DCT data and technology providers in order to best serve its customers. We are also optimistic about the company’s expanded partnership with Komodo Health in May. Syneos Health, in April, announced a strategic partnership with Medable (renowned cloud platform for patient-centered drug development), which is aimed at increasing clinical trial diversity while improving patient access and experiences to boost biopharmaceutical product development.

Strong Solvency: 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 $2.89 billion when compared with the end of first-quarter 2021. Although the quarter’s total debt was much higher than the corresponding cash and cash equivalent level, the company does not have any current-year-payable debt on its balance sheet. This is a positive in terms of the company’s solvency level as, at least during the year of economic downturn, the company is holding sufficient cash for debt repayment.

Downsides

Tough Competitive Landscape: Syneos Health faces stiff competition in the Clinical Solutions segment from MedTech bigwigs like Laboratory Corporation of America Holdings LH and PRA Health Sciences, Inc., among others. Further, the company competes with some prominent names like Ashfield, IQVIA in the Commercial Solutions segment.

Escalating Operating Expenses: Rising operating expenses are building pressure on Syneos Health’s bottom line. During the second quarter, the company’s selling, general and administrative (SG&A) expenses rose 33.5% year over year.

Zacks Rank and Key Picks

Currently, Syneos Health carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the Medical Info Systems industry include Computer Programs and Systems, Inc. CPSI and Omnicell, Inc. OMCL, each sporting a Zacks Rank #2 (Buy). You can see the complete list of today’s  Zacks #1 Rank (Strong Buy) stocks here.

Computer Programs and Systems has a long-term earnings growth rate of 14.3%.

Omnicell has a long-term earnings growth rate of 12%.


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