Will Paycom Software (PAYC) Q3 Earnings Post a Surprise?

A provider of human capital management software as a service, Paycom Software, Inc.PAYC is set to report third-quarter 2016 results on Nov 1. Last quarter, the company posted a positive earnings surprise of 23.1%. Let's see how things are shaping up for this announcement.

Factors to Consider

Paycom Software reported better-than-expected second-quarter 2016 results, with the top- and bottom line surpassing the Zacks Consensus Estimate. Also, year-over-year comparisons on both counts were favorable.

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 the other positives.

We believe that the higher adoption 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. Also, the successful cross-selling of newer products to the existing client base might boost Paycom Software's revenues.

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

PAYCOM SOFTWARE Price and EPS Surprise


Earnings Whispers

Our proven model does not conclusively show that Paycom Software is likely to beat the Zacks Consensus Estimate in its upcoming release. 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. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Paycom Software is 0.00%. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Paycom Software has a Zacks Rank #3. Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company's ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a 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 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:

Mercadolibre, Inc. MELI with Earnings ESP of +8.24% and a Zacks Rank #1 You can see the complete list of today's Zacks #1 Rank stocks here

HubSpot, Inc. HUBS with Earnings ESP of +13.89% and a Zacks Rank #3

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MERCADOLIBRE IN (MELI): Free Stock Analysis Report

PAYCOM SOFTWARE (PAYC): Free Stock Analysis Report

HUBSPOT INC (HUBS): Free Stock Analysis Report

PAYLOCITY HLDG (PCTY): 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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