Paychex Inc.
(
PAYX
) is scheduled to announce its fourth quarter fiscal 2012 results
on June 28 after the closing bell, and we notice limited upward
movement in estimates at this point.
Third Quarter Overview
Paychex delivered modest third quarter 2012 results, with
earnings of 37 cents per share matching the Zacks Consensus
Estimate. The 2.8% increase from the year-ago quarter was on
account of revenue improvement across all its segments.
Revenues grew 7.2% year over year, backed by increases of 12.3%
in Human Resource Service revenue and 5.5% in Payroll Service
revenue.
Higher operating expenses resulted in operating margin
contraction of 50 basis points year over year.
Outlook
Paychex seemed a bit cautious about the fiscal 2012 guidance.
Keeping in view the current market and economic condition, Paychex
believes that checks per client will moderate through fiscal
2012.
Agreement of Analysts
Out of the 21 analysts providing estimates for the fourth
quarter, we noticed absolutely no revision. Of the 23 estimates for
fiscal 2012, only one went up in the last 30 days.
The limited movement since Paychex reported third quarter
results suggests that there is a lack of driving events.
But some analysts prefer to remain cautious based on
management's commentary regarding the sluggishness of new
small-business formation. Moreover, a few analysts think that
aggressive pricing from
Automated Data Processing Inc.
(
ADP
) is stealing customers away from Paychex.
The time difference between when the company receives payments
from its clients and pays it out to employees typically earns some
interest for Paychex. Now, with the government contemplating lower
interest rates, this quick income stream of the company will also
be restricted.
Magnitude of Estimate Revisions
There was no change in the Zacks Consensus Estimate for the
fourth quarter in the past 90 days. But the estimate for fiscal
2012 moved forward by a penny to $1.52 in the past 30 days. The
estimate for fiscal 2013 remained unaltered at $1.63.
Recommendation
The market is losing confidence on the growth of the SMB group.
The sector is being hit hard by lackluster demand that comes on the
heels of high unemployment and inflation rates. Outsourcing
companies like Paychex are highly dependent on the performance of
the SMB sector and this is the reason why it may not see much
revenue growth.
However, we are encouraged by management's positive commentary
regarding continued investments in product development and
synergies from the recent acquisition of Icon Time Systems in
January 2012. In this environment, we believe that cost control
will play an important role for Paychex.
Despite new business wins in the SMB sector, stiff competition
from Automated Data Processing and
Insperity
(
NSP
), and an uncertain unemployment situation will remain constant
worries. However, Paychex' zero European exposure will be
benefit.
Paychex has a Zacks # 3 Rank, implying a short-term Hold
recommendation.
AUTOMATIC DATA (ADP): Free Stock Analysis
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INSPERITY INC (NSP): Free Stock Analysis Report
PAYCHEX INC (PAYX): Free Stock Analysis Report
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