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Why Is Paychex (PAYX) Up 4.1% Since the Last Earnings Report?
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It has been about a month since the last earnings report for Paychex, Inc. (PAYX - Free Report) . Shares have added about 4.1% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Paychex Soars on Q1 Earnings Beat and Upbeat '18 View
Paychex commenced fiscal 2018 on an impressive note, reporting solid results for the fiscal first quarter, wherein the top and bottom lines, both, came ahead of the respective Zacks Consensus Estimate. Moreover, the company registered year-over year improvement on both the counts.
The company reported non-GAAP earnings per share of 62 cents, which beat the Zacks Consensus Estimate by a couple of cents and grew 11% year over year. The upside mainly stemmed from higher revenues and efficient cost management.
Quarter Details
Paychex reported total revenues (including interest on funds held for clients) of $816.8 million, up 4% year over year. Excluding interest on funds held for its clients, total services revenues (Payroll service and Human Resource Services) ascended 4% year over year to $803.1 million. The Zacks Consensus Estimate was pegged at $816 million.
Payroll Service segment revenues went up 2% from the year-ago period to $457.8 million, primarily on the back of higher revenues per check and client base.
Human Resource Services segment revenues rose 7% year over year to $345.3 million, chiefly driven by strong growth in client base and worksite employees, elevated revenues from retirement, as well as online HR administration services. The growth was partially offset by tough comparisons wherein the segment’s revenues benefited from the implementation of the Affordable Care Act.
Interest on funds held for clients increased 14% on a year-over-year basis to $13.7 million, mainly benefiting from higher average interest rates earned.
Paychex’s total expenses flared up 2% from the year-ago tally to $471.8 million due to increased investments in technology and PEO business. Acquisition related expenses also contributed to this increase. However, total expenses, as a percentage of total revenues, contracted 110 basis points (bps) to 57.8%.
The company’s operating income grew 7% year over year to $345 million. In addition, Paychex’s operating margin expanded 110 bps to 42.2%, chiefly driven by lower total expenses as a percentage of revenues.
Net income came in at $227.8 million, up from $217.4 million reported in the prior-year quarter.
Balance Sheet & Cash Flow
Paychex exited the fiscal first quarter with cash, cash equivalents and corporate investments of $368.2 million compared with $323.4 million recorded at the end of the previous quarter. The company has no long-term debt. It generated operating cash flow of $343.6 million during the reported quarter.
During the quarter, Paychex paid $179.1 million as dividend and repurchased shares worth $94.1 million.
Guidance
Buoyed by splendid fiscal first-quarter results, the company raised its revenues outlook. The company now anticipates total revenues to jump 6%, up from the previous estimate of 5%. This translates to revenues of $3.34 billion, which is higher than the Zacks Consensus Estimate of $3.31 billion.
Human Resource Services revenues are now projected to grow in the range of 12-14%, up from 8-10% projected earlier.
Apart from this, the company revised its guidance for operating margin and effective tax rate. Operating margin is anticipated to be between 39% and 40% compared with the previous guidance of approximately 40%. Effective income tax rate is now projected to be in the band of 35-35.5%, down from the previous estimate of 35.5-36%.
All other guidance provided during fourth-quarter fiscal 2017 results remained unchanged. Management expects Payroll Service revenues to climb year over year in the range of 1-2%, while Interest on funds held for clients and investment income is expected to grow in the mid-to-upper-teen range.
Net income is still likely to advance 5% year over year on a GAAP basis and 7% on a non-GAAP basis. Non-GAAP earnings per share are estimated to be up in the range of 7-8%, which comes to $2.35-$2.38. The Zacks Consensus Estimate is currently pegged at $2.37.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend for fresh estimates. There have been two revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There has been one move higher compared to eight lower two months ago.
At this time, Paychex's stock has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than momentum investors.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions have been net zero. Interestingly, the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.
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Why Is Paychex (PAYX) Up 4.1% Since the Last Earnings Report?
It has been about a month since the last earnings report for Paychex, Inc. (PAYX - Free Report) . Shares have added about 4.1% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Paychex Soars on Q1 Earnings Beat and Upbeat '18 View
Paychex commenced fiscal 2018 on an impressive note, reporting solid results for the fiscal first quarter, wherein the top and bottom lines, both, came ahead of the respective Zacks Consensus Estimate. Moreover, the company registered year-over year improvement on both the counts.
The company reported non-GAAP earnings per share of 62 cents, which beat the Zacks Consensus Estimate by a couple of cents and grew 11% year over year. The upside mainly stemmed from higher revenues and efficient cost management.
Quarter Details
Paychex reported total revenues (including interest on funds held for clients) of $816.8 million, up 4% year over year. Excluding interest on funds held for its clients, total services revenues (Payroll service and Human Resource Services) ascended 4% year over year to $803.1 million. The Zacks Consensus Estimate was pegged at $816 million.
Payroll Service segment revenues went up 2% from the year-ago period to $457.8 million, primarily on the back of higher revenues per check and client base.
Human Resource Services segment revenues rose 7% year over year to $345.3 million, chiefly driven by strong growth in client base and worksite employees, elevated revenues from retirement, as well as online HR administration services. The growth was partially offset by tough comparisons wherein the segment’s revenues benefited from the implementation of the Affordable Care Act.
Interest on funds held for clients increased 14% on a year-over-year basis to $13.7 million, mainly benefiting from higher average interest rates earned.
Paychex’s total expenses flared up 2% from the year-ago tally to $471.8 million due to increased investments in technology and PEO business. Acquisition related expenses also contributed to this increase. However, total expenses, as a percentage of total revenues, contracted 110 basis points (bps) to 57.8%.
The company’s operating income grew 7% year over year to $345 million. In addition, Paychex’s operating margin expanded 110 bps to 42.2%, chiefly driven by lower total expenses as a percentage of revenues.
Net income came in at $227.8 million, up from $217.4 million reported in the prior-year quarter.
Balance Sheet & Cash Flow
Paychex exited the fiscal first quarter with cash, cash equivalents and corporate investments of $368.2 million compared with $323.4 million recorded at the end of the previous quarter. The company has no long-term debt. It generated operating cash flow of $343.6 million during the reported quarter.
During the quarter, Paychex paid $179.1 million as dividend and repurchased shares worth $94.1 million.
Guidance
Buoyed by splendid fiscal first-quarter results, the company raised its revenues outlook. The company now anticipates total revenues to jump 6%, up from the previous estimate of 5%. This translates to revenues of $3.34 billion, which is higher than the Zacks Consensus Estimate of $3.31 billion.
Human Resource Services revenues are now projected to grow in the range of 12-14%, up from 8-10% projected earlier.
Apart from this, the company revised its guidance for operating margin and effective tax rate. Operating margin is anticipated to be between 39% and 40% compared with the previous guidance of approximately 40%. Effective income tax rate is now projected to be in the band of 35-35.5%, down from the previous estimate of 35.5-36%.
All other guidance provided during fourth-quarter fiscal 2017 results remained unchanged. Management expects Payroll Service revenues to climb year over year in the range of 1-2%, while Interest on funds held for clients and investment income is expected to grow in the mid-to-upper-teen range.
Net income is still likely to advance 5% year over year on a GAAP basis and 7% on a non-GAAP basis. Non-GAAP earnings per share are estimated to be up in the range of 7-8%, which comes to $2.35-$2.38. The Zacks Consensus Estimate is currently pegged at $2.37.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend for fresh estimates. There have been two revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There has been one move higher compared to eight lower two months ago.
Paychex, Inc. Price and Consensus
Paychex, Inc. Price and Consensus | Paychex, Inc. Quote
VGM Scores
At this time, Paychex's stock has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than momentum investors.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions have been net zero. Interestingly, the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.