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Here's Why You Should Hold Onto Paychex (PAYX) Stock for Now
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Paychex, Inc.’s (PAYX - Free Report) shares have charted a solid trajectory in recent times, appreciating a massive 59.4% over the past year, ahead of the 51.1% rally of the industry it belongs to and 55.6% rise of the Zacks S&P 500 composite.
What’s Supporting the Rally?
Paychex has grown meaningfully over the years by providing industry-leading service and technology solutions to its clients and their employees. Its solid business model, diversified products and services, and strategic acquisitions have boosted top-line growth.
Notably, revenues grew at a five-year (2016-2021) CAGR of 6.5%. Higher revenues will expand margins and increase profitability in the long run.
Paychex's total-debt-to-total-capital ratio at the end of second-quarter fiscal 2021 was 0.22, much lower than the industry’s 0.36. A low debt-to-capitalization ratio indicates lower risk of insolvency in challenging times. Further, the company’s cash and cash equivalent balance of $927 million at the end of the quarter was above the total debt level of $804 million, underscoring that the company has enough cash to meet its debt burden.
Paychex puts consistent efforts to reward its shareholders through dividends and share repurchases. The company paid dividends of $889.4 million, $826.8 million and $739.7 million, and repurchased shares worth $171.9 million, $56.9 million and $143.1 million, respectively, in fiscal 2020, 2019 and 2018.
Hurdles to Counter
Paychex is seeing increase in expenses as it continues to invest in sales, marketing, product development and supporting technology. PEO insurance costs, which include workers’ compensation and minimum premium health insurance benefit plans, also add to the company’s expenses.
Total expenses of $2.58 billion increased 7% year over year in fiscal 2020. These expenses increased 15% year over year in fiscal 2019, 10% in fiscal 2018 and 6% in fiscal 2017.
The long-term expected earnings per share (three to five years) growth rate for ExlService, Gartner and Blucora is pegged at 9.4%, 13.5% and 15%, respectively.
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Here's Why You Should Hold Onto Paychex (PAYX) Stock for Now
Paychex, Inc.’s (PAYX - Free Report) shares have charted a solid trajectory in recent times, appreciating a massive 59.4% over the past year, ahead of the 51.1% rally of the industry it belongs to and 55.6% rise of the Zacks S&P 500 composite.
What’s Supporting the Rally?
Paychex has grown meaningfully over the years by providing industry-leading service and technology solutions to its clients and their employees. Its solid business model, diversified products and services, and strategic acquisitions have boosted top-line growth.
Notably, revenues grew at a five-year (2016-2021) CAGR of 6.5%. Higher revenues will expand margins and increase profitability in the long run.
Paychex's total-debt-to-total-capital ratio at the end of second-quarter fiscal 2021 was 0.22, much lower than the industry’s 0.36. A low debt-to-capitalization ratio indicates lower risk of insolvency in challenging times. Further, the company’s cash and cash equivalent balance of $927 million at the end of the quarter was above the total debt level of $804 million, underscoring that the company has enough cash to meet its debt burden.
Paychex puts consistent efforts to reward its shareholders through dividends and share repurchases. The company paid dividends of $889.4 million, $826.8 million and $739.7 million, and repurchased shares worth $171.9 million, $56.9 million and $143.1 million, respectively, in fiscal 2020, 2019 and 2018.
Hurdles to Counter
Paychex is seeing increase in expenses as it continues to invest in sales, marketing, product development and supporting technology. PEO insurance costs, which include workers’ compensation and minimum premium health insurance benefit plans, also add to the company’s expenses.
Total expenses of $2.58 billion increased 7% year over year in fiscal 2020. These expenses increased 15% year over year in fiscal 2019, 10% in fiscal 2018 and 6% in fiscal 2017.
Zacks Rank and Stocks to Consider
Paychex currently carries a Zacks Rank #3 (Hold).
Some better-ranked service stocks are ExlService (EXLS - Free Report) , Gartner (IT - Free Report) and Blucora , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term expected earnings per share (three to five years) growth rate for ExlService, Gartner and Blucora is pegged at 9.4%, 13.5% and 15%, respectively.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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