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5 Reasons Why You Should Invest in Paychex (PAYX) Stock Now

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A prudent investment decision involves buying well-performing stocks at the right time while selling those that are at risk. A rise in share price and strong fundamentals signal a stock’s bullish run.

Paychex, Inc. (PAYX - Free Report) has performed well in the past three months and has the potential to sustain the momentum in the near term.  Consequently, if you haven’t taken advantage of its share price appreciation yet, it’s time you add the stock to your portfolio.

What Makes it an Attractive Pick?

An Outperformer: A glimpse at the company’s price trend reveals that the outsourcing stock has had an impressive run on the bourse in the past three months. Shares of Paychex have returned 10.4%, which compares favorably with the Zacks S&P 500 Composite’s rise of 2.6%. 

 

Solid Rank & VGM Score: Paychex currently carries a Zacks Rank #2 (Buy) and has a Value Growth Momentum Score (VGM Score) of B. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best investment opportunities for investors. Thus, the company appears to be a compelling investment proposition at the moment.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Positive Earnings Surprise History: Paychex has a decent earning surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in two of the previous four quarters, delivering an average positive earnings surprise of 1.2%.

Strong Growth Prospects: The Zacks Consensus Estimate for current quarter earnings is pegged at 71 cents, indicating year-over-year growth of 14.5%. Moreover, earnings are expected to register 8.6% and 8.1% growth, respectively, in 2019 and 2020. The stock has long-term expected earnings per share growth rate of 8.2%.

Growth Factors: Increasing demand for outsourcing services offers ample opportunities to Paychex. The company’s efforts to capitalize on these opportunities by periodically introducing products and services for its clients and by moving into the mid-market arena have paid off. In fourth-quarter fiscal 2018,HRS segment revenues climbed 17% year over year to $401 million, mainly owing to a rise in human capital management (HCM) services clients. The HCM services include comprehensive HR outsourcing services, comprising HROI, time and attendance, retirement services and insurance services. In fiscal 2018, segment revenues rose 14% year over year to $1.5 billion. According to Paychex, in fiscal 2019, HRS revenues growth is anticipated in the range of 10–11%.

Paychex’s efforts to capitalize on the rising opportunities in the professional employer organization (PEO) industry are appreciable. To this end, Paychex completed the acquisitions of HR Outsourcing Holdings, Inc., a national professional employer organization.

Buyout of Lessor Group is expected to contribute significantly to FactSet’s payroll services. Notably, in the fiscal fourth quarter, Lessor contributed approximately 1% to total payroll service revenue growth.  Payroll service revenues increased 3% year over year to $452.4 million in fiscal fourth quarter and 2% to $1.8 billion in fiscal year 2018. As of May 31, 2018 (inclusive of the Lessor acquisition) Paychex had more than 650,000 payroll clients across more than 100 locations in the United States and Europe.

Paychex’s strong cash position reflects management’s efficient execution in recent times. At the end of fiscal fourth quarter 2018, Paychex had cash, cash equivalents and corporate investments of $424.2 million compared with $421.2 million at the end of the prior quarter. The company has no long-term debt.  With no long-term debt to clear off, the significant amount of cash provides Paychex the flexibility to pursue any growth strategy in the form of strategic acquisitions and other related investments.

Other Stocks to Consider

Some other top-ranked stocks in the broader Business Services sector include Automatic Data Processing, Inc. (ADP - Free Report) , Broadridge Financial Solutions, Inc. (BR - Free Report) and FLEETCOR Technologies, Inc. (FLT - Free Report) . All the stocks carry a Zacks Rank #2.

The long-term expected earnings per share (three to five years) growth rate for Automatic Data Processing, Broadridge and FLEETCOR Technologies is 11.3%, 10% and 16.5%, respectively.

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