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Paycom (PAYC) Up 14.8% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Paycom Software (PAYC - Free Report) . Shares have added about 14.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Paycom due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Paycom's Q3 Earnings and Revenues Surpass Estimates

Paycom Software reported better-than-anticipated third-quarter 2020 results on Wednesday. The online payroll and human resource technology provider’s adjusted earnings of 70 cents per share beat the Zacks Consensus Estimate of 56 cents and remained flat year over year.

Revenues

The company generated revenues of $196.5 million, which increased 12.3% from the year-earlier period as well as surpassed the consensus mark of $192 million. This year-over-year increase was mainly driven by new client additions which offset the negative impact of interest-rate cuts and lower headcounts at client offices.

In its earnings conference call, Paycom noted that lower headcounts at its pre-pandemic client offices resulted in approximately $2-million weekly recurring revenue loss during the quarter. Moreover, the 150-basis-point interest-rate cut in March led to an additional weekly recurring revenue loss of $350,000.

Margins

Adjusted gross profit increased 11.7% from the year-ago period to $166.8 million. However, adjusted gross margin contracted 40 basis points (bps) on a year-over-year basis to 84.9%.

Paycom Software’s adjusted EBITDA inched up 1.4% year on year to $67.5 million. However, adjusted EBITDA margin shrunk 370 bps to 34.3%.

Balance Sheet & Cash Flow

Paycom Software exited the September-end quarter with cash and cash equivalents of $156.4 million compared with the $113.5 million recorded in the prior quarter.

The company’s balance sheet comprises long-term debt (including current maturities) of $31.3 million compared with the previous quarter’s $31.8 million.

Cash from operations was $174.3 million in the first nine months of 2020, and the company repurchased approximately $52 million worth of its common stock.

Guidance

For the fourth quarter, Paycom Software estimates revenues between $212 million and $214 million.

Management projects adjusted EBITDA in the range of $76 million to $78 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 17.08% due to these changes.

VGM Scores

At this time, Paycom has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Paycom has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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