Is Syneos Health (SYNH) on track for recovery?

Syneos Health (SYNH) shares rose more than 9% today after the company reported better-than-expected results for the final quarter of 2022 this morning. Specifically, revenues and adjusted earnings for the period decreased only 1.0% and 16.9% year-on-year to $1.36 billion and 1, driven by increased demand for large pharmaceutical customers and their deployment solutions. It’s now $1.23 per share. This exceeded analyst expectations by $70.5 million and 3 cents per share respectively.

But I believe the bigger driver of today’s post-earnings strength is the continued improvement in new business acquisitions. The latter lack is a major factor in the epic collapse that SYNH’s shares suffered last November, after disappointing Q3 2022 results and very weak order activity during the period. was the cause. -pocket expenses) totaled only $431.4 million, less than one-third of the revenue recognized during the period. In addition to acknowledging that SYNH’s own clinical operating model is not nimble enough for some customers, particularly in the post-clinical market, and is beginning to negatively impact repeat business opportunities for him, this is a soft new business. trend is likely to persist.

The good news is that net new business awards totaled $664.9 million, up 54.1% from the third quarter. This includes a return to his $396 million strong bookings in SYNH’s commercial solutions business. This was up 77.6% quarter-on-quarter and down just 5.8% year-over-year, leading to a healthy booking-to-billing ratio of 1.43 for the quarter. Improvements in the company’s more problematic Clinical Solutions segment were less dramatic, but new awards still increased him 29.0% to $268.9 million.

Of course, this doesn’t mean SYNH is out of the woods. In fact, the company’s book-to-book ratio for the entire quarter was 0.69, suggesting it’s using up its existing backlog faster than it can replace it. This is why SYNH ended the period with his total backlog of $6.75 billion. This is his 9.5% decrease from the same period last year. Also, the company currently forecasts 2023 revenue and adjusted earnings of $4.975 billion to $5.175 billion, or $326 million to $353 million per share. It’s also the reason. At the midpoint, this reflects a year-on-year decline of 5.9% and he fell 28.1%, short of $5.138 billion. Analysts had expected sales and earnings per share for him of $3.79.

However, one of the reasons for the significant decline in revenue is the increased investment SYNH continues to make to rebuild relationships with some of its customers. This is especially true for the small and medium cap (SMID) biopharmaceutical and oncology market. These markets have contributed most to the strong growth we have achieved over the last few years, but have also been the most notable slowdown in new award activity. last few quarters. The continued improvement in SYNH’s new business win rate seen in the fourth quarter is already a result of actions taken to date, including reducing the complexity of the company’s full-service operating model and streamlining its organizational structure. It’s coming from a more efficient and effective delivery model that’s coming. , is enhancing customer engagement and bringing more innovation and insight into its clinical operations. I think this is the correct approach.

More importantly, we hope that the increased returns from these actions will continue to drive new business wins and ultimately set SYNH on its path to sustained profitable growth. . And while this may take some time, the massive rally offered by the stock remains down more than 50% from its 52-week high (even after today’s fantastic rally), and the company’s 2023 It’s trading at less than 12 times the midpoint of year earnings. It’s a forecast, and it’s heavily discounted both the five-year average forecast P/E ratio and the market as a whole, so I think it’s worth the wait.