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Why it is Time to Scrap Paychex (PAYX) From Your Portfolio
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If you are still holding shares of Paychex Inc. (PAYX - Free Report) in your portfolio, it is time to dump them as chances of favorable returns in the near term seem bleak.
This is because Paychex has underformed the Zacks Categorized Outsourcing industry in the last three months. The company has lost 2.8% compared with the Outsourcing industry’s gain of 4.4% during the same period.
What are the Concerns?
Analysts have become increasingly bearish on this stock with 10 out of 13, who cover the stock, revising the estimate downward. With no upward revision in the last 60 days, the Zacks Consensus Estimate for fiscal 2018 declined from $2.39 per share to $2.37. This indicates tepid prospects for the company.
Paychex provided its outlook for fiscal 2018. Total revenue is estimated to increase by nearly 5%. This translates to revenues of $3.309 billion, which is lower than the Zacks Consensus Estimate of $3.35 billion.
Non-GAAP earnings per share are estimated to increase in the range of 7% to 8% which comes to $2.35–$2.38 (mid-point $2.365 per share). The earnings per share guidance range is however, lower than the Zacks Consensus Estimate of $2.37 at its mid-point.
Currently, Paychex carries a Zacks Rank #4 (Sell). Also, the company has a very poor VGM Score of “F.” The Zacks VGM Style Score rates each stock on their combined weighted styles, which helps in identifying those with the most attractive value, best growth, and most promising momentum across the board. Stocks with a VGM Style Score of ‘A’ or ‘B’ and a Zacks Rank of #1 (Strong Buy) or 2 (Buy), have even better returns, on average, than the individual components, as it considers three times as many items that are correlated to future stocks returns.
On the valuation front too, the stock looks unattractive. The company currently trades at a forward P/E multiple of 23.9x, higher than the Zacks categorized Outsourcing industry’s average of 22.1x. The ratio, which is obtained by dividing a stock’s current market price with its historical or estimated earnings, measures how much an investor needs to shell out per dollar of earnings. The higher the P/E of a stock, the poorer is the value for an investor.
Going forward, unfavorable interest rates and competition from Automatic Data Processing (ADP - Free Report) and Insperity (NSP - Free Report) remain primary concerns.
Bottom Line
We expect the aforementioned factors to hurt the company’s near-term profitability. Hence, we recommend investors to stay away from Paychex until the Zacks Rank, VGM score and estimates improve.
Applied Materials has a long-term expected earnings growth rate of 16.6%.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2%, respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation. See Them Free>>
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Why it is Time to Scrap Paychex (PAYX) From Your Portfolio
If you are still holding shares of Paychex Inc. (PAYX - Free Report) in your portfolio, it is time to dump them as chances of favorable returns in the near term seem bleak.
This is because Paychex has underformed the Zacks Categorized Outsourcing industry in the last three months. The company has lost 2.8% compared with the Outsourcing industry’s gain of 4.4% during the same period.
What are the Concerns?
Analysts have become increasingly bearish on this stock with 10 out of 13, who cover the stock, revising the estimate downward. With no upward revision in the last 60 days, the Zacks Consensus Estimate for fiscal 2018 declined from $2.39 per share to $2.37. This indicates tepid prospects for the company.
Paychex provided its outlook for fiscal 2018. Total revenue is estimated to increase by nearly 5%. This translates to revenues of $3.309 billion, which is lower than the Zacks Consensus Estimate of $3.35 billion.
Non-GAAP earnings per share are estimated to increase in the range of 7% to 8% which comes to $2.35–$2.38 (mid-point $2.365 per share). The earnings per share guidance range is however, lower than the Zacks Consensus Estimate of $2.37 at its mid-point.
Currently, Paychex carries a Zacks Rank #4 (Sell). Also, the company has a very poor VGM Score of “F.” The Zacks VGM Style Score rates each stock on their combined weighted styles, which helps in identifying those with the most attractive value, best growth, and most promising momentum across the board. Stocks with a VGM Style Score of ‘A’ or ‘B’ and a Zacks Rank of #1 (Strong Buy) or 2 (Buy), have even better returns, on average, than the individual components, as it considers three times as many items that are correlated to future stocks returns.
On the valuation front too, the stock looks unattractive. The company currently trades at a forward P/E multiple of 23.9x, higher than the Zacks categorized Outsourcing industry’s average of 22.1x. The ratio, which is obtained by dividing a stock’s current market price with its historical or estimated earnings, measures how much an investor needs to shell out per dollar of earnings. The higher the P/E of a stock, the poorer is the value for an investor.
Going forward, unfavorable interest rates and competition from Automatic Data Processing (ADP - Free Report) and Insperity (NSP - Free Report) remain primary concerns.
Bottom Line
We expect the aforementioned factors to hurt the company’s near-term profitability. Hence, we recommend investors to stay away from Paychex until the Zacks Rank, VGM score and estimates improve.
Stocks to Consider
A better-ranked stocks in the broader technology sector is Applied Materials, Inc. (AMAT - Free Report) , sporting a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Materials has a long-term expected earnings growth rate of 16.6%.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2%, respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation. See Them Free>>