A month has gone by since the last earnings report for Paychex (PAYX Quick QuotePAYX - Free Report) . Shares have added about 5.9% in that time frame, outperforming the S&P 500.

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

Paychex Beats On Q3 Earnings & Revenues Estimates

Paychex reported better-than-expected  third-quarter fiscal 2021 results.

Adjusted earnings of 96 cents per share beat the Zacks Consensus Estimate by 3.2% but decreased 1% on a year-over-year basis. Total revenues of $1.11 billion beat the consensus mark by 0.5% but decreased 2.7% year over year.

Despite continuous impact of the COVID-19 pandemic, the company witnessed solid client retention in the reported quarter.

Revenues in Detail

Revenues from Management Solutions decreased 0.4% year over year to $846.8 million. The segment benefited from increase in the company’s client base and increased penetration of its suite of solutions, especially HR outsourcing, time and attendance, and retirement services, partially offset by decline in check volumes. Solid growth was witnessed from new services and product initiative offerings.

Professional employer organization (“PEO”) and Insurance Solutions revenues were $249.8 million, down 8% from the year-ago quarter. The downfall was due to a decline in the number of clients’ worksite employees, decrease in state unemployment insurance within the PEO driven by rising unemployment costs, and lower workers’ compensation premiums driven by reduced wages and softening of market rates.

Interest on funds held for clients decreased 29% year over year to $15.1 million on lower average interest rates and realized gains. Average investment balances stayed consistent.

Operating Performance

Adjusted operating income decreased 0.3% year over year to $468.6 million. Adjusted operating margin rose to 42.2% from 41.1% in the year-ago quarter.

Adjusted EBITDA of $517.5 million decreased 1% year over year.

Balance Sheet & Cash Flow

Paychex exited third-quarter fiscal 2021 with cash and cash equivalents of $787 million compared with $693.5 million at the end of the prior quarter. Long-term debt was $797.2 million compared with $797 million in the prior quarter. Cash provided by operating activities was $439.9 million in the reported quarter.

During the reported quarter, the company paid out $223.8 million in dividends and repurchased shares worth $47.2 million.

Fiscal 2021 View

For fiscal 2021, total revenues are expected to either decline up to 2% or remain flat. Previously, it was expected to be either flat or decline up to 3%.

Adjusted earnings per share are anticipated to decline up to 2% or  remain flat. Previously, it was expected to decline in the range of 1% to 4%. Adjusted operating margin is expected to be 36-37% compared with the prior guidance of around 36%. Adjusted EBITDA margin is expected to be 41-42% compared with the prior guidance of around 41%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Paychex has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, 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, Paychex has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.