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Paycom Up to Strong Buy: Should It Be in Your Portfolio?

On Oct 13, Zacks Investment Research upgraded Paycom Software, Inc.PAYC to a Zacks Rank #1 (Strong Buy). The upgrade came on the back of better-than-expected second-quarter fiscal 2015 results and strong fundamentals.

Also, Paycom Software's shares are up 53.8% year-to-date and posted a strong return of 28.7% over the past six months. These make the company an attractive investment opportunity. Paycom Software also delivered positive earnings surprises in the last four quarters with an average beat of 47.9%.

Paycom Software reported revenues of $48.9 million, which not only increased 47% from the year-ago quarter but also came ahead of the Zacks Consensus Estimate of $46 million. The year-over-over increase was driven by a shift toward cloud-based offerings, which gained traction in the marketplace. Also, new client additions positively impacted quarterly revenues.

Moreover, a 46.4% increase in recurring revenues and a whopping 80.2% increase in implementation and other revenues on a year-over-year basis were positives.

The company's adjusted earnings per share (excluding one-time items but including stock-based compensation) came in at 10 cents per share, which not only beat the Zacks Consensus Estimate of 6 cents share but also increased from 4 cents reported in the year-ago quarter.

Revenue growth seems to be steady and was positively impacted by higher recurring revenues and higher traction in cloud-based offerings. Better-than-expected demand for advanced human capital management and payroll software solutions during the reported quarter were encouraging.

Buoyed by better-than-expected second-quarter results, the company provided positive third quarter and fiscal 2015 revenue guidance. For third-quarter, Paycom Software expects revenues in the range of $51 million to $52 million. The Zacks Consensus Estimate is pegged at $51 million.

For fiscal year 2015, Paycom Software expects revenues in the range of $210 million to $212 million. The Zacks Consensus Estimate is pegged at $210 million.

We believe that higher traction of Paycom Software's Affordable Care Act ("ACA") dashboard application that tracks employee count, employee status and health care plan affordability will act as a tailwind for the company in the long run. Also, Paycom Software might witness long-term growth by successfully cross-selling newer products to the existing client base, which will boost revenues, going forward.

Nevertheless, competition from companies like Paylocity Holding Corporation PCTY and Intuit Inc. INTU remains a headwind.

Investors may also consider NetApp, Inc. NTAP which sports the same rank as Paycom.

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NETAPP INC (NTAP): Free Stock Analysis Report

INTUIT INC (INTU): Free Stock Analysis Report

PAYLOCITY HLDG (PCTY): Free Stock Analysis Report

PAYCOM SOFTWARE (PAYC): Free Stock Analysis Report

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Zacks Investment Research

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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