What's In The Offing For Paychex (PAYX) In Q2 Earnings?

Paychex Inc. (NASDAQ:PAYX) is set to report second-quarter fiscal 2018 results on Dec 21. Last quarter, the company delivered a positive earnings surprise of 3.33%. Also, the company has outperformed the Zacks Consensus Estimate in all of the trailing four quarters with an average positive earnings surprise of 2.22%.

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

Influencing Factors

Paychex is a provider of payroll and integrated human resource, and employee benefits outsourcing solutions. It caters to the small- to medium-sized businesses (SMB) in the United States and is expected to continue benefiting from its strong domain expertise, going ahead.

In fact, Paychex’s investments in product development, technology and focus on building its sales force to support revenue growth are impressive. Also, product launches and joint venture initiatives in a less-than-half-penetrated market are encouraging.

Meanwhile, the company’s top-line continues to be boosted by its inorganic growth strategies. In this context, Paychex’s acquisition of HROI in August is worth mentioning. This is because this buyout is expected to drive this payroll and human resource solutions provider’s clientele and revenues.

However, the company is facing issues in retaining its customer base for the last few quarters, which is a major concern. Due to a challenging demand environment and modest decline in retention, the company’s payroll client base remained flat in the previous quarter. Additionally, political uncertainty, which in turn impacted outsourcing-decision making in the mid-market affected the company’s client base.

Furthermore, increasing competition from industry peers like Automatic Data Processing, Insperity, Intuit (NASDAQ:INTU), H&R Block (NYSE:HRB), Broadridge Financial Solutions and DST System is another key concern.

What Our Model Says

Our proven model does not conclusively show that Paychex is likely to beat estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP 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 -0.68% and a Zacks Rank #3.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

Stocks to Consider

Here are a couple of stocks that you may consider as our model shows that they have the right combination of elements to post an earnings beat:

Broadcom Limited (NASDAQ:AVGO) has an Earnings ESP of +1.02% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Western Digital Corporation (NASDAQ:WDC) has an Earnings ESP of +1.31% and a Zacks Rank #1.

Bazaarvoice, Inc. (NASDAQ:BV) has an Earnings ESP of +12.50% and a Zacks Rank #1.

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