Yahoo Finance Why Is Paychex (PAYX) Down 5% Since Last Earnings Report?
A month has gone by since the last earnings report for Paychex (PAYX). Shares have lost about 5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Paychex due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Paychex's Q3 Earnings and Revenues Beat Estimates
Paychex, Inc. reported better-than-expected third-quarter fiscal 2023 results.
Adjusted earnings of $1.29 per share beat the Zacks Consensus Estimate by 4% and increased 12.2% on a year-over-year basis.
Total revenues of $1.4 billion also beat the Zacks Consensus Estimate by 1.5% and increased 8.2% year over year. Service revenues of $1.3 billion were up 7% year over year.
Quarter Details
Revenues from the Management Solutions segment increased 7% year over year to $1 billion. The segment benefited from growth in the number of clients and client’s employees served for human capital management (“HCM”), and additional worksite employees for HR Solutions. Also, strong demand for HR Solutions, retirement and time and attendance solutions, price realization, higher product penetration, and expansion of HCM ancillary services acted as tailwinds to the segment.
Professional employer organization (“PEO”) and Insurance Solutions’ revenues were $321.2 million, up 6% from the year-ago quarter’s level. The uptick was due to growth in the number of average worksite employees, a rise in average wages per worksite employee, and an increase in state unemployment insurance revenues. Interest on funds held for clients increased more than 100% year over year to $35.3 million.
EBITDA of $655.8 million increased 7% year over year. Operating income increased 9% year over year to $611.9 million.
Paychex exited the quarter with cash and cash equivalents of $1.3 billion compared with $1.1 billion reported at the end of the prior quarter. Long-term debt was $798.1 million compared with $797.9 million in the prior quarter.
The company generated $604.2 million of cash from operating activities and capital expenditures were $31.1 million. PAYX paid out $284.8 million as dividends in the quarter.
Fiscal 2023 View Tweaked
Paychex updated its adjusted earnings per share view with respect to year-over-year growth for fiscal 2023. Adjusted EPS is now expected to register 13-14% growth compared with the prior expectation of 12-14% growth.
PAYX continues to expect total revenues to register 8% growth.
Management Solutions’ revenues are expected to grow around 8% (prior view: 7). PEO and Insurance Solutions’ revenues are expected to grow 5-7%. Interest on funds held for clients is now anticipated to be in the range of $100-$105 million (prior view: $100 million to $110 million).
Adjusted earnings of 99 cents per share beat the Zacks Consensus Estimate by 4.2% and increased 8.8% on a year-over-year basis. Total revenues of $1.2 billion also beat the Zacks Consensus Estimate by 0.5% and increased 7.4% year over year.
Revenues in Detail
Revenues from Management Solutions segment increased 8% year over year to $895.3 million. The segment benefited from growth in the number of client employees served for human capital management (HCM) and additional worksite employees for HR Solutions. Also, improved revenue per client on price realization and higher product penetration, strong demand for HR Solutions, retirement, time and attendance solutions and expansion of HCM ancillary services acted as tailwinds.
Professional employer organization (“PEO”) and Insurance Solutions’ revenues were $273.3 million, up 4% from the year-ago quarter’s level. The uptick was owing to growth in the number of average worksite employees. Interest on funds held for clients increased 54% year over year to $21.7 million.
Operating Performance
Operating income increased 7% year over year to $472.3 million. EBITDA of $518.6 million increased 4.7% year over year.
Balance Sheet & Cash Flow
Paychex exited second-quarter fiscal 2022 with cash and cash equivalents of $1.1 billion compared with $1.18 billion reported at the end of the prior quarter. Long-term debt was $797.9 million compared with $797.8 million in the prior quarter. Cash provided by operating activities was $321.6 million in the reported quarter. During the reported quarter, PAYX paid out $284.7 million as dividends.
Fiscal 2023 View Tweaked
Paychex upped its adjusted earnings per share view with respect to year-over-year growth for fiscal 2023. Adjusted EPS is now expected to register 12-14% growth compared with the prior expectation of 11-12% growth. PAYX continues to expect total revenues to register 8% (prior view: 7-8%) growth. Management Solutions’ revenues are expected to grow 7-8% (prior view: 5-7%). PEO and Insurance Solutions’ revenues are expected to grow 5-7% (prior view: 8-10%).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Paychex has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Paychex has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Paychex, Inc. (PAYX) : Free Stock Analysis Report
