Back to top

Analyst Blog

Payroll and human resource solutions provider, Paychex Inc. (PAYX - Snapshot Report), is slated to release first-quarter 2014 results on Sep 30, 2013, after the closing bell. It is noteworthy that in the last quarter, Paychex recorded a positive earnings surprise of 2.7%. The company has a trailing four-quarter average positive surprise of 2.57%. Let us see how things are shaping up for this quarter.

Growth Factors this Past Quarter

Paychex’s fourth quarter witnessed growth across its services segment, primarily aided by Human Resource Services revenues. Growth in Human Resource Services revenues was driven by client growth and price increases. Also, increases in checks per payroll and revenue per check positively impacted Payroll service revenues. Moreover, the client retention rate was satisfactory.

Moreover, the company’s modest revenue growth supported by better cost management and capacity utilization boosted operating performance. However, Paychex’s earnings remained flat on a year-over-year basis as the company incurred higher tax provision for a state income tax settlement.

Earnings Whispers?

We are encouraged by Paychex’s product development and focus on building sales force to support revenue growth. Moreover, Paychex’s focus on small and mid sized business looking for HR solutions could provide the company with opportunities. However, the macroeconomic sluggishness coupled with growing competition from Intuit and Automatic Data Processing could be an overhang.

The Zacks Consensus Estimate for the first quarter stands at 43 cents with no estimate revisions witnessed in the last 60 days. The stock carries a Zacks Rank #3 (Hold).

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Our model states that a stock needs to have both a positive Zacks Earnings ESP and a Zacks Rank #1, 2 or 3 to beat earnings estimates. You could, however, consider the following stocks that satisfy both criteria:

  • Plexus Corp. (PLXS - Analyst Report), with Earnings ESP of +1.49% and a Zacks Rank #2 (Buy)
  • DragonWave Inc. (DRWI - Snapshot Report), with Earnings ESP of +4.17% and a Zacks Rank #2 (Buy)
  • LinkedIn Corp (LNKD - Analyst Report), with Earnings ESP of +100% and a Zacks Rank #2 (Buy)

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%