Paychex’s 2Q Profit Beats Street Estimates; Top Analyst Lifts PT

Paychex reported better-than-expected second-quarter (ending Nov. 30, 2020) results and provided upbeat guidance for fiscal 2021. However, shares of the human capital management solution provider fell 2.3% on Wednesday.

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Paychex’s (PAYX) 2Q adjusted earnings of $0.73 per share exceeded analysts’ expectations of $0.66 and grew 4% year-over-year. The company’s 2Q revenue of $983.7 million fell 1% year-over-year but surpassed the consensus estimate of $954 million.

Paychex CEO Martin Mucci said, “Financial results for the second quarter showed continued recovery in our key business metrics. The effects of the COVID-19 pandemic impacted our results and year-over-year comparisons; however, client retention remains strong, and our sales performance has resulted in year-over-year growth in the number of clients sold and serviced.” (See PAYX stock analysis on TipRanks)

Buoyed by stronger-than-expected 2Q results, Paychex now expects fiscal 2021 revenue to be either flat or decline by 3% year-on-year. Previously, the company projected a decrease of 2%-4% in its top line. Adjusted EPS is now anticipated to fall by 1%-4% compared to a previous forecast of a 6%-8% decline.

Following the company’s earnings release, Jefferies analyst Samad Samana raised the stock’s price target to $95 (0.6% upside potential) from $85. In a note to investors, Samana wrote that Paychex “maintained its conservative approach to guidance.” However, the analyst maintained a Hold rating on the stock as he sees moderation in positive trends.

Meanwhile, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 4 Buys, 7 Holds and 1 Sell. The average price target stands at $90.83 and implies downside potential of about 3.8% to current levels. Shares have gained almost 11% year-to-date.