Paylocity Holding CorporationPCTY is set to report third-quarter fiscal 2016 results on May 5. Last quarter, the company posted a positive earnings surprise of 90.9%. Let's see how things are shaping up for this announcement.
Factors to Consider
We remain positive about Paylocity's regular investments in SaaS technology. Notably, over the past few quarters, clients moving from traditional payroll service providers to the company's SaaS-based services generated a significant portion of the revenues. Therefore, we believe that regular investments in technological upgrades, along with product innovations, will continue to boost the company's top line over the long run. Such initiatives are also likely to have a positive impact on the upcoming results.
Furthermore, higher adoption of Paylocity's ACA dashboard application that tracks employee count, employee status and health care plan affordability will act as a tailwind over the long run.
However, competition in the payroll processing sector from new entrants as well as existing players such as Automatic Data Processing, Inc. ADP , Oracle Corporation and SAP SE remains a headwind.
Our proven model does not conclusively show that Paylocity is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) 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 stand at 6 cents. Hence, the difference is 0.00%.
Zacks Rank: Paylocity holds a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, a 0.00% ESP makes surprise prediction difficult.
Conversely, we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies, which are worth considering, as our model shows that they have the right combination of the two elements needed to post an earnings beat:
- Synopsys Inc. SNPS , with an Earnings ESP of +6.38% and a Zacks Rank #1
- Fitbit Inc. FIT , with an Earnings ESP of +175.00% and a Zacks Rank #2