Syneos Health, Inc. is gaining from strong results across its operating segments. The company’s earnings in the second quarter of 2022 were ahead of the Zacks Consensus Estimate. A healthy backlog growth across businesses instills optimism. However, unfavorable foreign exchange movements and stiff competition do not bode well for the company.

In the past year, the Zacks Rank #3 (Hold) stock has declined 33.4% compared with the 43.6% decline of the industry and an 8.8% drop of the S&P 500.

The renowned provider of biopharmaceutical outsourcing solutions has a market capitalization of $6.36 billion. Its earnings surpassed estimates in the trailing four quarters, the average surprise being 4.1%.

In the past five years, the company’s earnings registered a 13.7% growth compared with the industry’s 17.7% rise and the S&P 500’s 13.4% increase. The company’s expected earnings growth rate of 6.4% for the next year compares with the industry’s growth projection of 26% and the S&P 500’s projected 2.9% increase.

Image Source: Zacks Investment Research

Let’s delve deeper.

Factors At Play

Impressive Q2 Results: Syneos Health ended the second quarter with better-than-expected earnings. The year-over-year improvement in earnings and revenues looks impressive. Robust performance in the Clinical Solutions and Commercial Solutions segments is encouraging. The continued strength in the company’s SMID customer segment instills optimism. Expansion of margins bodes well. A strong backlog growth is an added upside.

Strong Clinical Solutions Arm: In the second quarter, the Clinical Solutions segment reported revenue growth of 3.3% year over year and 5.6% at CER, including reimbursable expenses. The total growth included a 90-basis point contribution from acquisitions. Excluding reimbursable expenses, Clinical Solutions revenues increased 11.7% at CER. The upside resulted from growth across the company’s full service and FSP portfolios, with particular strength in the top 50 pharma customers.

The clinical book-to-bill ratio in the second quarter was 0.92 times, including reimbursable expenses. Excluding reimbursable expenses, the clinical book-to-bill ratio was 0.94 times in the quarter under review.

Strong Long-term Potential: The strong awards and backlog growth position Syneos Health for sustained long-term growth. In the second quarter, the company’s critical win rates were consistent with prior periods. In the Clinical Solutions segment, the company reported backlog growth of 12.1%, excluding reimbursable expenses. In the Commercial Solutions segment, the company ended the second quarter with backlog growth of 19.6%, excluding reimbursable expenses.

During the quarter’s earnings call, Syneos Health stated that it witnessed a healthy market demand, with its pipeline of opportunities remaining comparable to 2021. The company is also encouraged by the abundance of opportunities to secure more preferred provider relationships, particularly in service areas of clinical monitoring, Pharmacovigilance and biometrics.

Downsides

Strict Regulatory Environment: The biopharmaceutical industry is governed by stringent governmental regulations in domestic and global markets. Within the Clinical Solutions business, the FDA regulates the clinical trials of drug products in human enrollments and the form and content of regulatory applications. Globally, clinical trials are governed by the laws and regulations of the country where these are conducted.

Tough Competition: In the Clinical Solutions segment, Syneos Health primarily competes with full-service CROs and services offered by in-house R&D departments of biopharmaceutical companies, universities and teaching hospitals. Some prominent competitors in the Commercial Solutions segment are Ashfield, Havas SA and Omnicom Group Inc., among others.

Forex Woes: Syneos Health is exposed to fluctuations in foreign currency. Unfavorable foreign exchange movements could significantly affect the company’s financial condition, results of operations, or cash flows.

Estimate Trend

In the past 60 days, the Zacks Consensus Estimate for Syneos Health’s 2022 earnings has moved 2.1% down to $5.02.

The Zacks Consensus Estimate for its 2022 revenues is pegged at $5.49 billion, suggesting a 5.4% rise from the 2021 figure.

Key Picks

A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. (AMN Quick QuoteAMN - Free Report) , ShockWave Medical, Inc. and McKesson Corporation (MCK Quick QuoteMCK - Free Report) .

AMN Healthcare has a long-term earnings growth rate of 3.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.7%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has outperformed its industry in the past year. AMN has lost 4.6% against the industry’s 32.6% fall.

ShockWave Medical, sporting a Zacks Rank #1 at present, has an estimated growth rate of 33.1% for 2023. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 180.1%.

ShockWave Medical has outperformed its industry in the past year. SWAV has gained 30.4% against the industry’s 26.8% fall over the past year.

McKesson has an estimated long-term growth rate of 10.1%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13%, on average. It currently carries a Zacks Rank #2 (Buy).

McKesson has outperformed its industry in the past year. MCK has gained 78.4% against the industry’s 10.5% fall.