Syneos Health, Inc. has been gaining from strength in the Clinical Solutions and Commercial Solutions segments. The attainment of commercialization milestones in the Syneos One portfolio buoys optimism. Further, robust performance by the company’s oncology business is an added advantage. However, mounting operating expenses and macroeconomic woes persist.

Over the past year, the Zacks Rank #3 (Hold) stock has gained 7.4% against the 50.8% decline of the industry and 7% rise of the S&P 500.

The renowned provider of biopharmaceutical outsourcing solutions has a market capitalization of $8.14 billion. Its earnings for fourth-quarter 2021 surpassed the Zacks Consensus Estimate by 3.5%.

Over the past five years, the company’s earnings registered 13.7% growth versus the industry’s 18% rise and the S&P 500’s 2.8% increase. The growth rate for the next year is estimated at 12.8%, compared with the industry’s growth expectation of 19.7% and the S&P 500’s estimated 9.9% growth.

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Let’s delve deeper.

Factors At Play

Q4 Upsides: Syneos Health ended the fourth quarter with better-than-expected earnings. The year-over-year improvement in earnings and revenues looks impressive. Robust performance by the Clinical Solutions and Commercial Solutions segments is encouraging as well. The broad-based growth in Deployment Solutions and consulting led to growth in the Commercial Solutions arm. Further, the continued strength in the company’s SMID customer segment and oncology business buoys optimism.

Syneos One Holds Potential: Syneos One coordinates integrated solutions across the entire clinical development and commercialization continuum. During the fourth quarter, Syneos Health’s Commercial Solutions business registered 19.8% revenue growth owing to strength in the company’s full-service approach resonating with customers and the Syneos One portfolio beginning to attain commercialization milestones. Per the company, Syneos One continued to resonate with customers, making it an attractive alternative to traditional limited outsourcing choices. Following the receipt of FDA approval for the underlying product in January 2022, the second commercial launch from this portfolio is currently underway, raising optimism.

Strong Clinical Solutions Arm: We are upbeat about Syneos Health’s Clinical Solutions business which registered revenue growth of 20.7% on a reported basis and 21% at CER in the fourth quarter. The upside resulted from growth in the company’s full-service portfolio, including the ramp-up in larger pharma relationships and strength in the company’s oncology business. In addition, acquisitions contributed 1000 basis points (bps) to total growth, while increasing reimbursable expenses provided a 70-bp tailwind. The clinical book-to-bill ratio for the fourth quarter was 0.34 times, including reimbursable expenses and the impact of related backlog adjustment, which resulted in a trailing 12-month book-to-bill ratio of 1.09 times.

Downsides

Escalating Expenses: During the fourth quarter, Syneos Health’s selling, general and administrative expenses rose 23.6% year over year. These escalating operating expenses led to a 50-bp contraction in adjusted operating margin, raising apprehension.

Strict Regulatory Environment: The biopharmaceutical industry is governed by extremely stringent governmental regulations in both domestic and global markets. The FDA regulates the clinical trials of drug products in human enrollments and the form and content of regulatory applications within the Clinical Solutions business.

Macroeconomic Woes: Syneos Health’s business largely depends on global economic conditions. Weaker global economic conditions may lead to reduced demand for the company’s products, increased competition, pressure on prices, declining supply and a lengthier sales cycle.

Estimate Trend

Over the past 90 days, the Zacks Consensus Estimate for Syneos Health’s 2022 earnings has moved 0.2% north to $5.15.

The Zacks Consensus Estimate for its 2022 revenues is pegged at $5.66 billion, suggesting an 8.6% rise from the 2021 figure.

Key Picks

A few better-ranked stocks in the broader medical space are Henry Schein, Inc. (HSIC Quick QuoteHSIC - Free Report) , Owens & Minor, Inc. (OMI Quick QuoteOMI - Free Report) and AmerisourceBergen Corporation .

Henry Schein has an estimated long-term growth rate of 11.8%. Henry Schein’s earnings surpassed estimates in the trailing four quarters, the average surprise being 25.5%. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Henry Schein has outperformed the industry over the past year. HSIC has gained 29.9% compared with the industry’s 4.6% rise over the past year.

Owens & Minor has a long-term earnings growth rate of 23.6%. Owens & Minor’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 29.5%, on average. It carries a Zacks Rank #2.

Owens & Minor has outperformed the industry over the past year. OMI has gained 12.4% against a 19% industry decline in the said period.

AmerisourceBergen has a long-term earnings growth rate of 8.2%. In the trailing four quarters, AmerisourceBergen’s earnings surpassed estimates in three and missed in one, delivering an average surprise of 2.3%. The stock currently sports a Zacks Rank #2.

AmerisourceBergen has outperformed its industry in the past year, gaining 32.7% versus the industry’s 4.5% rise.