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Here's Why You Should Retain 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 37.3% in the past year compared with 33.1% rally of the industry it belongs to.

Zacks Investment ResearchImage Source: Zacks Investment Research

What’s Supporting the Rally?

Paychex puts consistent efforts to reward shareholders through dividend payouts and share repurchases. The company paid out 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. Such initiatives not only instill investors’ confidence but also positively impact earnings per share.

Paychex's cash and cash equivalent balance of $1.05 billion at the end of third-quarter fiscal 2021 was above the long-term debt level $797 million, underscoring that the company has enough cash to meet debt burden.

Paychex has grown significantly over the years by providing industry-leading service and technology solutions to its clients and their employees. Its solid business model, diverse products and services as well as strategic acquisitions have boosted top-line growth.

Notably, revenues witnessed a five-year (2016-2021) CAGR of 6.5%. Higher revenues will expand margins and increase profitability in the long run.

Hurdles to Counter

High talent costs due to competition exert pressure on the staffing industry’s growth. Paychex being one of the participants, is likely to get affected.

Paychex’s top line growth/businesses are affected by seasonality. During third fiscal quarter (which ends in February), the company witnesses increasing number of new payroll clients, new retirement services clients and new Paychex HR Services worksite employees, compared with the remaining part of the fiscal year.

Zacks Rank and Stocks to Consider

Paychex currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector can also consider stocks like Equifax Inc. (EFX - Free Report) , Cross Country Healthcare (CCRN - Free Report) and Charles River Associates (CRAI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The long-term expected earnings per share (three to five years) growth rate for Equifax, Cross Country Healthcare and Charles River is pegged at 14%, 10.5% and 15.5%, respectively.

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