It has been about a month since the last earnings report for Paychex (PAYX Quick QuotePAYX - Free Report) . Shares have lost about 9.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Paychex due for a breakout? 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 catalysts.

Paychex Beats On Q2 Earnings & Revenues Estimates

Paychex reported better-than-expected second-quarter fiscal 2022 results.

Adjusted earnings of 91 cents per share beat the Zacks Consensus Estimate by 15.2% and increased 25% on a year-over-year basis. Total revenues of $1.11 billion beat the consensus mark by 4.6% and increased 13% year over year.

Revenues in Detail                  

Revenues from Management Solutions increased 14% year over year to $832 million. The segment benefited from higher checks per payroll for HCM services and net gain in worksite employees for HR solutions, higher revenue per client resulting from improved price realization, growth in the company’s client bases across HCM, and ancillary products resulting from strong sales performance and high levels of retention, improved market conditions on asset-based revenues for retirement services, and increase in funding for temporary staffing clients.

Professional employer organization (“PEO”) and Insurance Solutions revenues were $262.4 million, up 11% from the year-ago quarter. The uptick was due to an increase in the number of average worksite employees, impact of an increase in average wages per worksite employee, higher revenues on state unemployment insurance and rise in PEO health insurance revenues.

Interest on funds held for clients decreased 5% year over year to $14.1 million.

Operating Performance

Adjusted operating income increased 24% year over year to $440.3 million. Adjusted EBITDA of $495.1 million increased 21% year over year.

Balance Sheet & Cash Flow

Paychex exited second-quarter fiscal 2022 with cash and cash equivalents of $636.2 million compared with $1.10 billion at the end of the prior quarter. Long-term debt was $797.5 million compared with $797.4 million in the prior quarter.

Cash provided by operating activities was $169.8 million in the reported quarter. During the reported quarter, the company paid out $238.3 million in dividends.

Fiscal 2022 View

For fiscal 2022, total revenues are now expected to register 10-11% growth compared with the prior expectation of 8%. Adjusted earnings per share are now expected to register 18-20% growth compared with the prior expectation of 12-14%. Management Solutions revenues are now expected to grow 10-11% compared with the prior expectation of 8%. Adjusted operating margin is expected to be almost 39-40% compared with the prior expectation of 38-39%. Adjusted EBITDA margin is now expected to be nearly 44% compared with the prior expectation of 43%.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Paychex has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Paychex has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.