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Syneos Health (SYNH) Down 5.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Syneos Health (SYNH). Shares have lost about 5.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Syneos Health due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Syneos Health's Q4 Earnings Gain on Overall Growth

Syneos Health posted fourth-quarter 2018 adjusted earnings per share (EPS) of 95 cents under ASC 606, which beat the Zacks Consensus Estimate of 81 cents by 17.3%. Additionally, under ASC 605, the metric came in at $1.05, as compared with the year-ago tally of 70 cents.

Adjusted EPS under ASC 606 in 2018 was $2.87. Moreover, under ASC 605, the metric came in at $3.15, as compared with the year-ago figure of $2.27 cents.

Revenues in Detail

Service revenues in the quarter totaled $1.145 billion, missing the Zacks Consensus Estimate of $1.152 billion under ASC 606. Whereas under ASC 605, the company reported service revenues (without considering the reimbursable out-of-pocket expenses) of $834.1 million, as compared with the year-ago figure of $750.5 million.

Service revenues in 2018 came in at $4.39 billion under ASC 606. Moreover, under ASC 605 the metric came in at $3.18 billion, as compared with the year-ago figure of $1.85 billion. Also, the Combined Company adjusted service revenues under ASC 605 came in at $3.18 billion in 2018, up from $3.10 billion in the prior year.

Per management, growth across all the segments drove top-line growth in the reported quarter. However, adverse currency movements impacted the revenues to the tune of $5.4 million.

Segmental Details

Under ASC 605, the Clinical Solutions segment delivered service revenues of $562.3 million in the fourth quarter, growing 4.3% year over year. The upswing was led by revenues from solid net awards in 2018, partially offset by adverse currency movements.

Commercial Solutions service revenues rose 17.5% year over year to $271.9 million in the recently-reported quarter. Solid net awards during 2018, strategic investments in business development, and the Syneos One, Kinapse buyouts, along with a favorable macro environment, drove the Commercial Solutions service revenues.

Margin Details

Under ASC 605, gross margin expanded 250 bps year over year to 34.6% in the Dec-end quarter.

Under ASC 605, selling, general and administrative expenses rose 4% year over year to $110.6 million. Adjusted operating margin (without including depreciation, amortization, transaction and integration-related and restructuring and other expenses) expanded 330 bps to 21.3% from the year-ago quarter.

Financial Details

Syneos Health exited 2018 with cash, cash equivalents, and restricted cash of $155.9 million compared with $322 million in 2017. In 2018, net cash provided by operating activities was $303.4 million compared with $198.3 million a year ago.

Guidance Issued

For 2019, the company issued adjusted service revenue guidance of $4.620-$4.730 billion. The Zacks Consensus Estimate pegged at $4.68 billion lies within the guided range.

For 2019, the company expects adjusted EPS to fall in the range of $3.03-$3.23. The Zacks Consensus Estimate for the same is pegged at $3.12 and lies well within the guided range.

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 -7.58% 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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