Paychex (PAYX - Free Report) just came out with quarterly earnings of $0.61 per share, in line with the Zacks Consensus Estimate. This compares to earnings of $0.54 per share a year ago. These figures are adjusted for non-recurring items.
This quarterly report represents an earnings surprise of 0%. A quarter ago, it was expected that this payroll processor and human-resources services provider would post earnings of $0.62 per share when it actually produced earnings of $0.63, delivering a surprise of 1.61%.
Over the last four quarters, the company has surpassed consensus EPS estimates two times.
Paychex, which belongs to the Zacks Outsourcing industry, posted revenues of $871.10 million for the quarter ended May 2018, surpassing the Zacks Consensus Estimate by 0.40%. This compares to year-ago revenues of $798.60 million. The company has topped consensus revenue estimates four times over the last four quarters.
It remains to be seen how the recently released numbers will impact the stock price, and the immediate price movement will reflect how these results and management's commentary on the earnings call help shape expectations for the coming quarter(s).
Paychex shares have added about 1.3% since the beginning of the year versus the S&P 500's gain of 1.9%.
What's Next for Paychex?
While Paychex has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?
There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.
Ahead of this earnings release, the estimate revisions trend for Paychex was favorable. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #2 (Buy) for the stock. So, the shares are expected to outperform the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.71 on $881.21 million in revenues for the coming quarter and $2.77 on $3.60 billion in revenues for the current fiscal year.
Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Outsourcing is currently in the top 31% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.