Syneos Health (SYNH) Down 49.8% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Syneos Health (SYNH). Shares have lost about 49.8% 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 its most recent earnings report in order to get a better handle on the important drivers.

Syneos Health Q4 Earnings and Revenues Top Estimates

Syneos Health reported fourth-quarter 2019 adjusted earnings per share of $1.03, which beat the Zacks Consensus Estimate by 1.9%. The metric also improved 8.4% from the year-ago figure.

GAAP earnings per share were 86 cents, marking an improvement of 9.5% from the year-ago number.

For 2019, adjusted earnings per share were $3.23, up 12.5% from the year-ago period. The bottom line beat the Zacks Consensus Estimate by 0.6%.

Revenues in Detail

Service revenues in the quarter totaled $1.21 billion. The top line rose 6.1% year over year, beating the Zacks Consensus Estimate by 1.7%.

For 2019, revenues totaled $4.67 billion, up 6.4% year over year. The top line surpassed the Zacks Consensus Estimate by 0.2%.

Segmental Details

The Clinical Solutions segment recorded service revenues of $899.3 million in the fourth quarter, up 9.5% year over year (adjusted revenues were up 9.7% at CER). The upside resulted from net new business growth. However, an adverse impact of foreign currency fluctuation offset revenue growth.

Commercial Solutions revenues were $313.7 million in the reported quarter, down 3.3% year over year (adjusted revenues moved down 3.4% at CER). The decline was caused by project cancellations and delays in 2019, and a reduction in medication adherence revenues.

Margin Details

Direct costs (excluding depreciation and amortization) rose 6.2% to $927.9 million in the quarter. Gross margin contracted 22 basis points (bps) to 23.5%.

Selling, general and administrative expenses rose 2.3% year over year to $112.4 million.

However, adjusted operating margin (excluding depreciation, amortization, transaction and integration-related, and restructuring and other expenses) expanded 11 bps from the year-ago quarter to 14.2%.

Financial Details

Syneos Health exited 2019 with cash and cash equivalents, and restricted cash of $163.7 million compared with $155.9 million at the end of 2018.

Cumulative cash flow from operating activities at the end of 2019, was $318.5 million compared with $303.4 million a year ago.

Guidance Updated

For 2020, the company reaffirmed the service revenue guidance at $4.88-$5 billion. The Zacks Consensus Estimate for the same is pegged at $4.94 billion.

For 2020, Syneos Health reaffirmed the adjusted earnings per share view at $3.58-$3.78. The Zacks Consensus Estimate for the same is pegged at $3.66.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -17.35% due to these changes.

VGM Scores

Currently, Syneos Health has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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. It's no surprise Syneos Health has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.