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Paycom Software (PAYC) to Report Q2 Earnings: What's in Store?

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Paycom Software, Inc. (PAYC - Free Report) is scheduled to report second-quarter 2017 results on Aug 1. Last quarter, the company posted a positive earnings surprise of 18.9%. Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Paycom Software provides cloud-based human capital management (HCM) software solution delivered as Software-as-a-Service (SaaS) with functionality and data analytics to manage the complete employment lifecycle, from recruitment to retirement.

The company’s sustained focus on investing in SaaS technology and mobile applications has been driving revenue. We believe that Paycom Software’s cloud-based solution has greater demand across a wide section of verticals. Larger companies have greater and more complex HCM needs and Paycom Software’s solution is evolving to serve them.

Growth of cloud computing has supported the company’s SaaS delivery model. According to IDC, the global SaaS market is expected to increase at a five-year compound annual growth rate (CAGR) (2014–2019) of 16%. With its SaaS-based applications, we believe that Paycom Software is well-positioned to lead the market for advanced human capital management and payroll software solutions.

Revenue growth seems to be steady and was positively impacted by higher recurring revenues and higher traction in cloud-based offerings. Better-than-expected demand for advanced human capital management and payroll software solutions were the other catalysts.

We believe that the higher adoption of Paycom Software’s Affordable Care Act (ACA) dashboard application that tracks employee count, employee status and health care plan affordability will act as a tailwind in the long run. Also, Paycom Software might witness long-term growth by successfully cross-selling newer products to the existing client base, which is likely to boost revenues.

Nevertheless, competition from companies like Paylocity Holding Corporation (PCTY - Free Report) , Intuit Inc. and Paychex, Inc. remains a headwind.

Paycom Software, Inc. Price and EPS Surprise

 

Earnings Whispers

Our proven model does not conclusively show that Paycom Softwareis likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 13 cents per share. Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Paycom Softwarecarries a Zacks Rank #3. Though a Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Fiserv, Inc. (FISV - Free Report) , with an Earnings ESP of +1.63% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pandora Media, Inc. (P - Free Report) , with an Earnings ESP of +17.95% and a Zacks Rank #3.

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