the new entity, into the upper echelon of large, global, late-stage contract research organizations, but at the price of a significant debt load. Most of Syneos’ CRO business comes from the most lucrative area of the CRO market: long, complex trials that typically require thousands of patients across the globe and thus have ample room for missteps. Trial sponsors need a CRO not only with strong technical know-how in specific disease areas, but also with the expertise in local country cultures and government relations.
Legacy INC Research was a leader in late-stage clinical research from small- and mid-cap biopharma, while inVentiv Health had better exposure to large pharma. The combined company has a diversified client base and provides a full portfolio of offerings, including staffing solutions and commercialization. While we don’t see significant competitive advantages in the staffing and selling business, both complete Syneos’ portfolio of services and offer flexibility to clients. The lower-margin commercial solutions business has had mixed success, but management’s cross-selling strategy to offer hybrid contracts with both clinical and commercial components should be a boon to the segment.
Financial Strength
Narrow-moat Syneos reported second-quarter revenue of $1.3 billion, representing nearly a 27% increase year over year. Adjusted EBITDA was $175 million for the quarter, up 47% from the prior-year period. Syneos is recovering well from pandemic-related challenges, as evidenced by its strong year-over-year figures. Due to strong demand across Syneos’ clinical and commercial segments, management has updated its 2021 guidance. Syneos reported solid net new business wins in Clinical and Commercial Solutions, totaling $1.7 billion for the quarter, representing a book-to-bill ratio of 1.33 times. The new business wins contributed to an ending backlog of $11.7 billion for the quarter, up 21% from the prior-year period.
Syneos ended the quarter with about $261 million of unrestricted cash and total debt outstanding of about $2.9 billion, resulting in a net leverage ratio of 3.8 times. We continue to think Syneos’ positive momentum indicates the operating environment remains strong. Syneos is in middling financial health after the 2017 merger, with about $2.9 billion in total debt weighing down the balance sheet. The deal pushed the company to the top tier of large, global late-stage players, which positions the company to secure deals with large biopharma companies and propel cash generation, but we expect the deal to limit near-term financial flexibility. Syneos’ major debt maturities are pushed out to 2024 and beyond, which provides the company ample opportunity to grow and unearth synergies from the merger.
Bulls Say’s
- Syneos’ late-stage contract research business is poised to benefit from stable research and development spending and increased outsourcing in the biopharma industry.
- High levels of new drug approvals should boost growth in the company’s contract commercialization business.
- Robust net new business wins should translate to accelerated growth in the contract research segment in the near term.
Company Profile
Syneos is a global contract research and outsourced commercialization organization that provides services to pharmaceutical and biotechnology firms. Its clinical solutions segment offers early- to late-stage clinical trial support that ranges from specialized staffing models to strategic partnerships that oversee nearly all aspects of a drug program, while the company’s commercialization solutions includes outsourced sales, consulting, public relations, and advertising services.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
our fair value estimate to $49 per share. Oneok’s second quarter clearly shows the firm benefiting from a recovery in volumes across its footprint after the COVID-19- driven decline last year as well as numerous new assets placed in service.
Given the strong results, Oneok boosted its 2021 EBITDA guidance to above its earlier midpoint of $3.2 billion, and toward our current forecast of $3.3 billion. Second-quarter EBITDA was $802 million, a 50% increase from last year’s levels. The largest contributor to its earnings improvement is a recovery in Rockies volumes, as well as higher realized commodity pricing on its gathering contracts with a percentage of proceeds component. Rockies volumes across its footprint have recovered over 85% since the second quarter of 2020 to nearly 300,000 barrels per day, or bpd, and Oneok still has 440,000 bpd of capacity, expandable to 540,000 bpd with minimal capital spending.
Every 25,000 bpd of Rockies volumes is worth another $100 million in Oneok EBITDA. Oneok remains well positioned to capture new opportunities in the Williston basin. The gas/oil ratio has improved 80% over the last year in the Williston basin, leading to a substantial recovery in gas production. Oneok’s second-quarter gas processing volumes were about 1.25 billion cubic feet per day, and the firm expects to connect more than 300 wells to its footprint this year.
The increased connections point to incremental upside of about 150 million cubic feet per day of processing volumes. Reducing flaring to zero across Oneok’s footprint adds another 100 million cubic feet per day. Beyond that, simply holding the current oil rig count flat in the Williston basin suggests another 1 billion cubic feet per day of upside in overall gas volumes over the next decade per Oneok estimates.
Company Profile
ONEOK, Inc. is an energy midstream service provider in the United States. The Company owns and operates natural gas liquids (NGL) systems, and is engaged in the gathering, processing, storage and transportation of natural gas. THe Company’s operations include a 38,000-mile integrated network of NGL and natural gas pipelines, processing plants, fractionators and storage facilities in the Mid-Continent, Williston, Permian and Rocky Mountain regions. The Company operates through three business segments. The Natural Gas Gathering and Processing segment provides midstream services to contracted producers in North Dakota, Montana, Wyoming, Kansas and Oklahoma.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.