What's In The Offing For Paychex (PAYX) In Q4 Earnings?

Paychex Inc. (NASDAQ:PAYX) is set to report fourth-quarter fiscal 2017 results on Jun 28. Last quarter, the payroll and human resource solutions provider delivered a positive earnings surprise of 1.9%. Notably, over the past four quarters, the company outperformed the Zacks Consensus Estimate thrice and matched the same on one occasion. This represents an average positive earnings surprise of 2.2%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

We are encouraged by Paychex’s investments in product development and constant focus on boosting sales force to drive revenues. We believe that the company’s expansion initiatives, including joint ventures and acquisitions, are in sync with its long-term growth strategy.

One of the key growth drivers for Paychex is demand for outsourcing. Human Resource Services outsourcing is a large, less-than-half-penetrated market that offers significant cost-cutting potential. Moreover, growing regulatory burden on small companies underscores the increasing need for outsourcing non-core activities.

The company continues to capitalize on this opportunity by regularly introducing products and services for upselling and moving into the mid-market. It is anticipated that the above factors will boost results in the to-be-reported quarter.

In the fiscal third quarter, Paychex’s earnings beat the Zacks Consensus Estimate while its revenues missed the same. Nonetheless, the year-over-year improvement on both counts was encouraging.

We are optimistic that Paychex might witness growth by successfully cross-selling newer products such as Paychex Premier, Major Market Services (MMS) and ancillary HRS products such as 401(k) record keeping, health insurance sales and workers' compensation administration to the existing client base. This strategy will positively impact the company’s fiscal fourth-quarter results.

However, sluggish economic growth and a possible rise in interest rates remain concerns. Intense competition in the outsourcing space from major players like Automated Data Processing Inc. (NASDAQ:ADP) and Insperity could add to its woes.

Paychex, Inc. Price and EPS Surprise

Paychex, Inc. Price and EPS Surprise | Paychex, Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that Paychex will beat on earnings this quarter. This is because a stock needs to have 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: The Most Accurate estimate and the Zacks Consensus Estimate are pegged at 53 cents. Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Paychex carries a Zacks Rank #3. Though a 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 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Advanced Micro Devices, Inc. (NASDAQ:AMD) , has an Earnings ESP of +50.00%, and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Texas Capital Bancshares, Inc. (NASDAQ:TCBI) has an Earnings ESP of +5.38% and carries a Zacks Rank #3.

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