Paychex (
PAYX
) is set to report Q1 FY '13 earnings later today. It reported
total revenues of $2.2 billion for fiscal year 2012, an increase of
7% from the $2.1 billion it had posted for FY 2011. During its last
quarter, the company's operating income also increased
approximately 7% to $196 million from $183 million the previous
year. Because Paychex's revenues are dependent on the number of
individuals employed across the US economy, we will be closely
watching whether or not a weak job market has impacted the
company's performance over the last three months.
Click here to see our full analysis of Paychex
Key Drivers
According to our model, the company's value consists of two
divisions; Payroll Services and Human Resource Services. Both of
these divisions are dependent on employment growth in the country,
and the revenue per client is correlated with the number of
employees that they have on their payrolls.
One of the biggest drivers in the Payroll Services division,
which is the average number of employees per payroll client and
constitutes approximately 70% of the company's value. If the slow
growth in the US job market has also dented employment growth
within Paychex's client base during the quarter, we could see
downside to our forecasts and consequently our price estimate. You
can assess the impact that slower growth in US employment will have
on Paychex's value by using our tool below.
Future Growth
Paychex is focusing simplifying payroll processing services for
small and medium businesses with SaaS-based mobile solutions such
as Paychex Online mobile. While the employment picture remains
bleak, it must innovate and simplify its platforms if it wants to
have any chance at growing its client base. If it is successful on
this front, the increase in the number of payroll clients could
partially offset any downside impact due to a bleak employment
picture. Therefore, we will also be closely monitoring any new
product announcements that the company might make along with its
earnings announcement.
We currently have a
$33.30 price estimate for PAYX
, which is approximately 4% below the current market price.
Click Here to Understand What Drives a Stock at
Trefis