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How Will Paychex's (PAYX) Top Line Shape Up in Q4 Earnings?

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Paychex Inc. (PAYX - Free Report) is set to report fourth-quarter fiscal 2018 results on Jun 27 before the bell.

We expect revenues of Payroll service and Human Resource Services (HRS) to increase in the to-be-reported quarter. Interest on Funds Held for Clients is also likely to surge.

In a year’s time, shares of Paychex have gained 27.3%, significantly outperforming the 18.6% rally of the industry it belongs to.

 

Here are the expectations in detail.

The Zacks Consensus Estimate for Payroll service revenues are pegged at $454 million, reflecting year-over-year growth of 2.9% when compared with the year-ago quarter’s actual figure.

The expected improvement is likely to be driven by growth in revenue per check resulting from price increases, net of discounts. In third-quarter fiscal 2018, Payroll service revenues increased 1.9% on a year-over-year basis.

For HRS revenues, the consensus mark stands at $398 million, mirroring a year-over-year improvement of 15.7%. This upside is expected to be driven by strength across the company’s human capital management (HCM) services including HR, retirement and insurance services. HRS revenues rose 17.1% year over year in the third quarter of fiscal 2018.

Retirement services revenues are likely to benefit from an increase in the number of plans served. Insurance services revenue are anticipated to grow, courtesy of growth in the number of health and benefit applicants, and higher average premiums for workers’ compensation insurance services.

Further, interest on fund held by clients is expected to increase on the back of higher average interest rates earned. The Zacks Consensus Estimate for this metric is pegged at $17.3 million, reflecting a year-over-year increase of 23.5%. Interest on fund held by clients witnessed year-over-year growth of 37.1% in third-quarter fiscal 2018.

Strength across all these categories will contribute significantly toward year-over-year growth of Paychex’s total revenues, the Zacks Consensus Estimate for which is currently pegged at $868 million, representing an increase of 8.6% year over year. In third-quarter fiscal 2018, total revenues of $867 million grew 8.9% year over year.

Zacks Rank and Key Picks

Currently, Paychex has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Business Services sector are The Dun & Bradstreet Corporation (DNB - Free Report) , Broadridge Financial (BR - Free Report) and FLEETCOR Technologies, Inc. (FLT - Free Report) . While Dun & Bradstreet sports a Zacks Rank #1 (Strong Buy), Broadridge and FLEETCOR carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term expected earnings per share (three to five years) growth rate for Dun & Bradstreet, Broadridge and FLEETCOR Technologies is 4.5%, 10% and 16.5%, respectively.

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