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Paychex to Report Q1 Earnings: Will it Surprise Estimates?

Payroll and human resource solutions provider, Paychex Inc.PAYX is set to report first-quarter fiscal 2016 results on Sep 30. Last quarter, the company posted in-line earnings. It is worth noting that Paychex has outperformed the Zacks Consensus Estimate in two out of the four preceding quarters with an average positive earnings surprise of 1.1%.

Let us see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Paychex reported decent fourth-quarter results wherein the bottom line came in line with the Zacks Consensus Estimate while the top line beat the same. Moreover, on a year-over-year basis, both revenues and earnings increased.

Also, we are encouraged by the company's investments in product development and focus on building its sales force to support revenue growth. We also believe that the company's expansionary initiatives, such as joint ventures and acquisitions, support its long-term growth strategy.

Product launches are expected to provide additional support. Moreover, Paychex's focus on small and mid-sized businesses looking for HR solutions could provide growth opportunities.

However, unfavorable interest rates and competition from Automatic Data Processing ADP and Insperity remain headwinds.

Earnings Whispers?

Our proven model does not conclusively show that Paychex will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stands at 51 cents. Hence, the difference is 0.00%.

Zacks Rank: Paychex's Zacks Rank #2 (Buy) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some other companies, which you may consider as our model shows that they have the right combination of elements to post an earnings beat in their upcoming releases:

Constellation Brands Inc. STZ with an Earnings ESP of +3.05% and a Zacks Rank #3 (Hold)

Walgreens Boots Alliance, Inc. WBA with an Earnings ESP of +6.17% and a Zacks Rank #2

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AUTOMATIC DATA (ADP): Free Stock Analysis Report

PAYCHEX INC (PAYX): Free Stock Analysis Report

CONSTELLATN BRD (STZ): Free Stock Analysis Report

WALGREENS BAI (WBA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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