Shares of payroll services provider Paycor (PYCR) are up 25% on media reports that the company is in talks to be acquired by competitor Paychex (PAYX).
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Several media outlets are reporting that a deal between the two payroll companies could be announced this week, citing unnamed sources with knowledge of the matter. Paycor currently has a market value of just over $4 billion, while Paychex is much larger with a market capitalization of nearly $50 billion.
However, while news of a potential acquisition has sent Paycor’s stock skyrocketing, the stock of Paychex is down 3% on news of the deal. Both PYCR stock and PAYX stock have risen 13% over the last 12 months, underperforming the broader market that has rallied more than 20%.
Sector Consolidation
A takeover of Paycor would combine two of the major players in the payroll sector, which is fragmented and has experienced consolidation recently. Growth through acquisitions allows for cost cuts when bundling services for customers that need outside payroll management, say analysts.
Paycor’s cloud-based software helps small and medium-sized businesses automate and streamline their payroll services and is used by more than 30,000 customers in the U.S. The acquisition of Paycor would be the largest deal to date for Paychex, which offers payroll services to 745,000 clients in the U.S. and Europe.
Is PYCR Stock a Buy?
The stock of Paycor currently has a consensus Moderate Buy rating among 13 Wall Street analysts. That rating is based on seven Buy and six Hold recommendations issued in the past three months. The average price target on PYCR stock of $21.09 implies 8.28% downside rise from current levels.
