) reached a new 52-week high of $36.16 on Thursday, Apr 11, 2013,
following decent third-quarter 2013 results announced on Mar 27,
an improving job market, improvement in hiring activities and
better visibility for revenues per check.
The closing price of this payroll service provider on Apr 12,
2013 was $36.14, representing a decent one-year return of about
16.8% and year-to-date return of about 13.5%. Average volume of
shares traded over the last three months stand at approximately
Paychex delivered a positive earnings surprise in the last
quarter with an average beat of 2.5% for the past four quarters.
This Zacks Rank #3 (Hold) company has a market cap of $13.2
billion and a long-term expected earnings growth rate of 9.2%.
Decent Third Quarter Results
Paychex reported earnings of 40 cents per share, beating the
Zacks Consensus Estimate by a penny and the year-ago level by
Revenues of $593.3 million grew 4.2% year over year and were
slightly above the Zacks Consensus Estimate. The revenue growth
was mainly due to higher checks per payroll and revenues per
check, client retention and client growth. Revenues from the
Payroll Service segment increased 1.9% year over year, while
Human Resource Services segment revenues grew 9.7% from the
Operating margin improved 60 basis points to 43.0% buoyed by
modest revenue growth, better cost management and capacity
For fiscal 2013, Paychex believes that Payroll Services revenue
growth will be supported by modest growth in client base and
improved revenue per check. Human Resources organic revenue
growth is expected to follow the historical trend. Paychex will
continue to invest heavily on product development.
Following the third-quarter results, the Zacks Consensus Estimate
for 2013 remained flat at $1.60. However, the estimate for 2014
was up by a penny to $1.71, supported by 6 upward estimate
revisions in the past 30 days. One estimate each was revised
downward for 2013 and 2014 over the past 30 days.
We believe that Paychex' stock price will go up as employment in
the small and medium business (SMB) space is improving. A report
Automatic Data Processing Inc.
) indicates a likely momentum in the SMB market. Also, a survey
conducted by SurePayroll Inc. (acquired by Paychex in Feb 2011)
shows that roughly 50.0% of the SMBs are going to invest in
hiring, marketing and technology. This raises the chance of
higher revenues per checks and checks per payroll.
We are also encouraged by management's commentary regarding
continued investments in product development and focus toward
building sales force to support revenue growth.
However, strict interest rates and stiff competition from ADP and
Insperity keep us concerned. However, Paychex' zero European
exposure and growing customer base will be beneficial for the
Other Stocks to Consider
Similar stocks that are currently performing well and have a
solid visibility include
) with a Zacks Rank #1 (Strong Buy) and
Portfolio Recovery Associates Inc.
) with a Zacks Rank #2 (Buy).
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