It has been about a month since the last earnings report for Paychex (PAYX Quick QuotePAYX - Free Report) . Shares have added about 12.7% 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 Q4 Earnings & Revenues Estimates

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

Adjusted earnings of 81 cents per share beat the Zacks Consensus Estimate by 2.5% and increased 12.5% on a year-over-year basis. Total revenues of $1.15 billion beat the consensus mark by 2.9% and increased 11.2% year over year.

Revenues in Detail     

 
Revenues from Management Solutions increased 12% year over year to $845.3 million. The segment benefited from growth in the company’s payroll client bases and product penetration across human capital management ("HCM") offerings resulting from strong sales performance and high levels of retention; high demand for HR Solutions; improved revenues per client resulting from higher employment levels within the company’s client base and enhanced price realization; and expansion of HCM ancillary services.

Professional employer organization (“PEO”) and Insurance Solutions revenues were $284.3 million, up 10% from the year-ago quarter. The uptick was due to an increase in average worksite employees, a rise in average wages per worksite employee, higher revenues on state unemployment insurance and a rise in PEO health insurance revenues.
Interest on funds held for clients increased 2% year over year to $14.7 million.

Operating Performance

Adjusted operating income increased 11% year over year to $394 million.

Adjusted EBITDA of $445.2 million increased 11% year over year.

Balance Sheet & Cash Flow

Paychex exited fourth-quarter fiscal 2022 with cash and cash equivalents of $370 million compared with $267.5 million at the end of the prior quarter. Long-term debt was $797.7 million compared with $797.6 million in the prior quarter.

Cash provided by operating activities was $337.2 million in the reported quarter. During the reported quarter, the company paid out $284.7 million in dividends.

Fiscal 2023 View

For fiscal 2023, total revenues are expected to register 7-8% growth. Adjusted earnings per share are expected to register 9-10% growth.

Management Solutions revenues are now expected to grow 5-7%. PEO and Insurance Solutions revenues are expected to grow 8-10%.

The adjusted operating margin is expected to grow 40-41%. Adjusted EBITDA margin is expected to be nearly 44%.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Paychex has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Paychex has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.