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Syneos Health (SYNH) Q1 Earnings Top Estimates, Margins Up

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Syneos Health Inc. SYNH reported first-quarter 2021 adjusted earnings per share (“EPS”) of 79 cents, which exceeded the Zacks Consensus Estimate by 6.8%. The metric increased 16.2% from the year-ago figure.

GAAP EPS was 37 cents, marking a 15.6% improvement from the year-ago figure.

Revenues in Detail

Revenues in the quarter totaled $1.21 billion. The top line surged 3.9% year over year on a reported basis (up 2.9% at constant exchange rate or CER). Moreover, it surpassed the Zacks Consensus Estimate by 1.8%.

The year-over-year uptick resulted from a strong performance by the Clinical Solutions arm.

Segmental Details

The Clinical Solutions segment recorded revenues of $938 million in the first quarter, up 6.3% year over year on a reported basis and 5.2% at CER. The upside resulted from the impact of acquisitions and increased project start-up activities. This was partially mitigated by contingent staffing divestiture in the second quarter of 2020 and slower recovery in reimbursable expenses.

Syneos Health, Inc. Price, Consensus and EPS Surprise

Syneos Health, Inc. Price, Consensus and EPS Surprise
Syneos Health, Inc. Price, Consensus and EPS Surprise

Syneos Health, Inc. price-consensus-eps-surprise-chart | Syneos Health, Inc. Quote

Commercial Solutions revenues were $270.8 million in the reported quarter, down 3.6% year over year and 4.2% at CER. The decline was caused by fall in reimbursable expenses and medication adherence business divestiture. However, this was partially offset by strength in consulting services.

Margin Details

Direct cost (excluding depreciation and amortization) rose 2.3% to $945.3 million in the quarter. Gross margin expanded 121 basis points (bps) to 21.8%.
Selling, general and administrative expenses were up 9.4% year over year to $137.3 million.

Adjusted operating margin (excluding depreciation, amortization, and restructuring and other expenses) expanded 64 bps from the year-ago quarter to 10.4%.

Financial Details

Syneos Health exited the first quarter of 2021 with cash and cash equivalents, and restricted cash of $264.7 million compared with $272.2 million at the end of 2020. Long-term debt at the end of the first quarter of 2021 was $2.86 billion compared with $2.90 billion at the end of 2020.

The company repurchased $44.5 million of common stock in the quarter and $255.5 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 first quarter of 2021 was $127.1 million compared with net cash outflow of $38.6 million in the year-ago period.

Capital expenses incurred by the company at the end of the first quarter of 2021 were $11.2 million compared with $11.9 million a year ago. Accordingly, free cash inflow reported by the company at the end of the first quarter of 2021 was $115.9 million versus the year-ago free cash outflow of $50.5 million.

2021 Guidance

Syneos Health has reiterated its earlier-issued revenue outlook and upped its EPS guidance for the year 2021.

The company continues to expect its full-year revenues to be in the range of $5,125 million-$5,325 million, reflecting growth of 16.1-20.6%. The Zacks Consensus Estimate for the same is currently pegged at $5.22 billion.

The adjusted EPS for the year is expected in the band of $4.17-$4.42, reflecting growth of 22.3-29.6% (up from the earlier provided range of $4.09-$4.38 indicating a surge of 19.9-28.4%). The Zacks Consensus Estimate for the same is currently pegged at $4.23.

Our Take

Syneos Health exited the first quarter of 2021 with better-than-expected results. Strong performance by the Clinical Solutions segment, despite challenging business conditions, is encouraging. The company’s strength in consulting services and increased project start up activities look impressive. Expansion of both margins also bodes well. The company has increased its revenue guidance for 2021, which instills investors’ confidence.

However, soft Commercial Solutions revenues are concerning. The company registered slower recovery in reimbursable expenses, which is worrying as well.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the broader medical space are Chemed Corporation CHE, Integra LifeSciences Holdings Corporation IART and HCA Healthcare, Inc. HCA.

Chemed reported first-quarter 2021 adjusted EPS of $4.44, beating the Zacks Consensus Estimate by 5.7%. Net revenues of $527.4 million outpaced the consensus estimate by 2%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Integra, a Zacks Rank #2 company, reported first-quarter 2021 adjusted EPS of 69 cents, beating the Zacks Consensus Estimate by 23.2%. Revenues of $360.1 million outpaced the consensus mark by 2.9%.

HCA Healthcare reported first-quarter 2021 adjusted EPS of $4.14, surpassing the Zacks Consensus Estimate by 23.6%. Net revenues of $14 billion exceeded the Zacks Consensus Estimate by 2.2%. It currently sports a Zacks Rank #1.

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