Shares of Syneos Well being (SYNH) gained greater than 9% at present after the corporate reported better-than-expected outcomes for the ultimate quarter of 2022 this morning. Particularly, bolstered by better demand from giant pharmaceutical clients and for its deployment options, income and adjusted earnings for the interval fell simply 1.0% and 16.9% from the prior yr to $1.36 billion and $1.23 per share. This exceeded analysts’ expectations by $70.5 million and three cents per share, respectively, at the same time as unfavorable international foreign money translation minimize 2.7 proportion factors from the highest line.

Nevertheless, I consider the larger driver of at present’s post-earnings energy is the sequential enchancment in new enterprise awards. The dearth of the latter was largely chargeable for the epic collapse suffered by SYNH’s inventory final November after reporting outcomes for the third quarter of 2022 that missed expectations and seeing exceedingly weak order exercise through the interval—with new enterprise awards (excluding reimbursable out-of-pocket bills) totaling simply $431.4 million or lower than a 3rd of the income acknowledged through the interval. Together with SYNH’s personal admission that its medical working mannequin has not been agile sufficient for a few of its clients—particularly inside the post-clinical market—and had begun to negatively impression its alternatives for repeat enterprise, this doubtless had some fearing that the smooth new enterprise developments might persist.

The excellent news is internet new enterprise awards totaled $664.9 million, which marked a 54.1% improve from Q3. This features a return to sturdy bookings in SYNH’s Business Options enterprise of $396.0 million, which was up 77.6% sequentially, down simply 5.8% year-over-year and led to a wholesome book-to-bill ratio of 1.43 for the quarter. The development within the firm’s extra troubled Medical Options phase was much less dramatic, however it nonetheless loved a 29.0% sequential bounce in new awards to $268.9 million.

In fact, this doesn’t imply that SYNH is out of the woods. Certainly, the corporate’s total book-to-bill ratio for the quarter of 0.69 nonetheless signifies that it’s burning by its current backlog of enterprise quicker than it’s in a position to exchange it. This is the reason SYNH ended the interval with whole backlog at $6.75 billion, which is down 9.5% from the identical level a yr earlier. It’s additionally why the corporate is at the moment forecasting income and adjusted earnings of $4.975-5.175 billion and $3.26-3.53 per share for 2023. On the midpoint, this displays declines of 5.9% and 28.1% from the prior yr and falls in need of the $5.138 billion in income and $3.79 in earnings per share analysts had been anticipating.

However one cause for the sizable drop in earnings is as a result of better investments SYNH will proceed to make to rebuild its relationship with a few of its clients. That is very true inside the small and mid-cap (SMID) biopharmaceutical and oncology markets, which had been most chargeable for the sturdy progress the corporate achieved within the years prior, however the place the slowdown in new award exercise has additionally been most pronounced over the previous a number of quarters. Given the sequential enchancment in SYNH’s new enterprise win fee seen in This autumn from the extra environment friendly and efficient supply mannequin that has already resulted from the actions taken up to now—which embody lowering the complexity of the corporate’s full-service working mannequin, streamlining its organizational construction, enhancing buyer engagement and incorporating extra innovation and insights in its medical operations—I feel that’s the correct method.

Extra importantly, I count on the growing payoff from these actions to proceed driving a restoration in new enterprise awards that finally places SYNH again on a path in direction of sustained revenue progress. And whereas this might take a while, the numerous upside supplied by its inventory—which stays down greater than 50% from its 52-week excessive (even after at present’s good bounce) and trades at lower than 12 instances the midpoint of the corporate’s 2023 earnings forecast and at a steep low cost to each its five-year common ahead P/E ratio and the general market—makes it well worth the wait for my part.