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Is Paychex (PAYX) Poised to Beat Earnings Estimates?

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Payroll and human resource solutions provider, Paychex Inc. (PAYX - Free Report) , is set to report fiscal second-quarter 2014 results on Dec 18, 2013, after market close. Last quarter, it posted a positive earnings surprise of 2.33%. Let us see how things are shaping up for this announcement.

Factors This Past Quarter

Paychex, Inc. is a provider of payroll and human resource (HR) outsourcing services for small and medium-sized businesses (SMBs). Its offerings include comprehensive payroll services, including payroll processing, payroll tax administration and employee pay services.

We remain encouraged by the company’s investments in product development and focus on building its sales force to support revenue growth. We also believe that the company’s expansionary initiatives through joint ventures and acquisitions should bode well for its long-term growth strategy.

Product launches are also expected to provide additional support. Moreover, Paychex’s focus on SMBs looking for HR solutions could provide the company with opportunities.

However, unfavorable interest rates and stiff competition from Automatic Data Processing (ADP - Free Report) and Insperity (NSP - Free Report) remain the possible headwinds for the company.

Earnings Whispers?

Our proven model does not conclusively show that Paychex is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate currently stands at 42 cents. Thus, the ESP is 0.00%.

Zacks Rank: Paychex carries a Zacks Rank #2 (Buy) but a positive ESP would have made us confident about an earnings beat.

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

Another company that you may want to consider as our model shows that it has the right combination of elements to post an earnings beat in the imminent future is:

Winnebago Industries Inc. (WGO - Free Report) , with Earnings ESP of +10.26% and a Zacks Rank #1 (Strong Buy).

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