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Here's Why Investors Should Hold On To Paychex (PAYX) Stock

ByZacks Investment Research
Published 12/18/2019, 09:12 PM
Updated 07/09/2023, 06:31 AM

Paychex, Inc. (NASDAQ:PAYX) is well poised for growth, backed by acquisitions and investments in sales, marketing, service and technology.

The company’s earnings for fiscal 2020 and 2021 are expected to grow 9.5% and 7.8%, respectively. Revenues are expected to increase 10.3% and 5.8% in fiscal 2020 and 2021, respectively.

Paychex’s stock has gained 30.2% year to date, outperforming the 28.3% growth of the industry it belongs to, and 26.1% rally of the Zacks S&P 500 composite.

Factors Aiding the Stock

Acquisitions, over time, have expanded Paychex’s customer base, and generated cost and revenue synergies. Apart from boosting revenue accretion, acquisitions have benefited the company’s operating margin while also resulting in tax synergies. The acquisition of Oasis in 2018 strengthened Paychex’s PEO growth strategy and expanded its PEO sales organization, HR outsourcing and technology-enabled services.

Paychex, Inc. Revenue (TTM)

Paychex, Inc. revenue-ttm | Paychex, Inc. Quote

The company’s continuous investments in sales, marketing, service and technology are contributing significantly toward revenue growth and operating efficiency improvement. In the second quarter of fiscal 2020, Paychex’s revenues of $990.7 billion increased 15% year over year. Operating income increased 11% year over year to $341.7 million.

A solid cash position helps Paychex pursue strategic acquisitions and related investments, and also continue to reward shareholders. The company exited second-quarter fiscal 2020 with cash and cash equivalents of $600.6 million compared with $586.4 million at the end of the prior quarter.

Some Overhangs

Paychex is seeing increase in expenses due to investments and the acquisition of Oasis. Total expenses rose 18% year over year to $649 million in the second quarter of fiscal 2020. The company's bottom line is likely to remain under pressure going forward.

Stocks to Consider

Paychex currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are Global Payments (NYSE:GPN) , Mastercard (NYSE:MA) and Cardtronics (NASDAQ:CATM) . While Cardtronics sports a Zacks Rank #1 (Strong Buy), Global Payments and Mastercard carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected EPS (three to five years) growth rate for Global Payments, Mastercard and Cardtronics is 18.1%, 16% and 4%, respectively.

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Cardtronics PLC (CATM): Free Stock Analysis Report

Paychex, Inc. (PAYX): Free Stock Analysis Report

Global Payments Inc. (GPN): Free Stock Analysis Report

Mastercard Incorporated (MA): Free Stock Analysis Report

Original post

Zacks Investment Research

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