Is A Beat In The Cards For Paychex (PAYX) In Q3 Earnings?

Paychex Inc. (NASDAQ:PAYX) is set to report third-quarter fiscal 2018 results on Mar 26. The question lingering on investors’ minds is whether or not this provider of payroll and integrated human resource and employee benefits outsourcing solutions will be able to deliver a positive surprise.

Notably, the company has surpassed the Zacks Consensus Estimate in three out of the trailing four quarters, with an average positive earnings surprise of 1.77%.

What the Zacks Model Says

Our proven model shows that Paychex is likely to beat estimates this quarter. This is because the stock fulfils the Zacks criteria of a positive Earnings ESP, and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Paychex has an Earnings ESP of +0.20% and a Zacks Rank of #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings is pegged at 61 cents, representing year-over-year growth of 10.9%. Additionally, analysts polled by Zacks project revenues of roughly $854.8 million, up 7.4% from the year-ago quarter.

Let’s now discuss the influencing factors in detail.

Factors to Consider

Strong domain expertise in human capital-management solutions for payroll, HR, retirement, and insurance services are expected to increase the company’s clientele and drive revenues.

The company’s product launches and joint-venture initiatives are additional positives. Its investments toward building the sales team, which eventually assists in client addition and revenue generation, is a major tailwind.

Notably, during the soon-to-be-reported quarter, the company’s solutions were adopted by the International Franchise Association (IFA) for providing payroll services for IFA membership.

We also believe Paychex’s inorganic growth strategies are also proving conducive to its growth. With 14 acquisitions since its inception, the company has significantly improved its solutions suite and total addressable market (TAM). These have also acted as revenue boosters.

However, a declining client retention rate is affecting the company’s financials. Additionally, heightening competition from industry peers like Automatic Data Processing (NASDAQ:ADP) , Insperity, Intuit (NASDAQ:INTU) , H&R Block (NYSE:HRB), Broadridge Financial Solutions (NYSE:BR) and DST System is another key concern.

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