Paychex (PAYX) AI Stock Analysis

• Market Cap: $54.73B
• Dividend Yield: 2.56%
• Average Volume (3M): 1.70M
• Price to Earnings (P/E): 32.0
• Beta (1Y): 0.76
• Revenue Growth: 4.18%
• EPS Growth: 5.67%
• Country: US
• Employees: 16,500
• Sector: Industrials
• Sector Strength: 66
• Industry: Corporate Services
• EPS (TTM): 4.75
• Shares Outstanding: 360,063,080
• 10 Day Avg. Volume: 1,951,512
• 30 Day Avg. Volume: 1,698,647
• PEG Ratio: 5.64
• Price to Book (P/B): N/A
• Price to Sales (P/S): 10.28
• Price to Cash Flow (P/CF): 46.80
• P/FCF Ratio: 54.60
• Enterprise Value/Market Cap: N/A
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: N/A
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $141.50
• Price Target Upside: -6.91% Downside
• Rating Consensus: Hold
• Number of Analyst Covering: 9

Paychex exhibits strong financial performance with robust profitability, solid cash flow, and low leverage. The technical indicators suggest a stable to slightly positive market sentiment. Despite a high valuation, the company's growth prospects and dividend yield offer value. The positive sentiment from the earnings call and strategic acquisition further bolster the stock's outlook.

Positive Factors

Market Position

Paychex announced the acquisition of Paycor for $4.1 billion, which is expected to enhance its market position.

Revenue Growth

The acquisition is expected to increase Paychex's FY'25E revenue by approximately 13-14%, potentially enhancing normalized growth by 80-100 basis points.

Negative Factors

Dilution Impact

The deal is expected to be slightly dilutive in both CY25 and CY26.

Integration Risks

There are potential post-merger integration risks, as PYCR is easily PAYX’s largest acquisition ever.

Organic Growth Concerns

This transaction raises questions about organic growth prospects in PAYX’s core business.

Paychex Business Overview & Revenue Model

Company Description

Paychex, Inc. is a leading provider of integrated human capital management solutions for payroll, benefits, human resources, and insurance services. Serving small to medium-sized businesses across the United States, Paychex delivers innovative solutions that help clients manage their workforce effectively. The company operates in sectors such as payroll processing, human resources outsourcing, and professional employer organization (PEO) services, focusing on automating and simplifying complex administrative tasks for businesses.

How the Company Makes Money

Paychex generates revenue primarily through its payroll processing and human resource services. The company charges fees for processing payroll, filing taxes, and managing employee paychecks for its clients. Additionally, Paychex earns money through its human resources outsourcing services, which include employee benefits administration, retirement services, and regulatory compliance assistance. The company also offers PEO services, providing comprehensive HR solutions for clients. Key revenue streams include subscription-based services, transaction-based fees, and value-added services. Paychex's strategic partnerships with financial institutions and technology providers enhance its service offerings and contribute to its growth in the competitive HR and payroll services market.

Paychex Financial Statement Overview

Summary

Paychex demonstrates robust financial health across its income statement, balance sheet, and cash flow statement. The company is characterized by strong revenue growth, excellent profitability margins, low leverage, and solid cash flow generation. Despite minor fluctuations in cash flow growth, the overall stability and profitability position Paychex as a financially sound entity in the corporate services industry.

Income Statement

Paychex exhibits strong financial performance with consistent revenue growth, reaching a TTM (Trailing-Twelve-Months) total revenue of $5.37 billion, a 6.8% increase from the previous year. The company maintains healthy gross and net profit margins, at approximately 71.8% and 32.0% respectively, indicating robust profitability. EBIT and EBITDA margins are also solid at 41.3% and 45.1%, reflecting efficient operations. The company shows a positive revenue trajectory with consistent growth over the years.

Balance Sheet

Paychex displays a solid balance sheet with a strong equity base, as indicated by a debt-to-equity ratio of 0.02, showcasing low leverage. The return on equity is impressive at 43.8%, highlighting effective use of shareholders' equity to generate profits. The equity ratio stands at 37.2%, reflecting a balanced capital structure with a healthy proportion of equity financing. The company's low level of debt reduces financial risk, although the equity ratio suggests room for improvement in asset leverage.

Cash Flow

The cash flow statement reveals a strong cash generation capability, with a TTM (Trailing-Twelve-Months) free cash flow of $1.56 billion. The operating cash flow to net income ratio is stable at 1.01, indicating efficient cash conversion from earnings. The free cash flow growth rate is slightly negative at -10.1%, but the free cash flow to net income ratio of 0.91 remains solid, ensuring good cash backing for profits. This financial stability supports ongoing operations and potential growth initiatives.

Breakdown
TTM	Jun 2024	Jun 2023	Jun 2022	Jun 2021	Jun 2020
Income Statement		Total Revenue
5.37B	5.28B	5.01B	4.61B	4.06B	4.04B
	Gross Profit
3.86B	3.80B	3.55B	3.26B	2.79B	2.76B
	EBIT
2.22B	2.17B	2.03B	1.84B	1.46B	1.46B
	EBITDA
2.42B	2.35B	2.21B	2.03B	1.65B	1.67B
	Net Income Common Stockholders
1.72B	1.69B	1.56B	1.39B	1.10B	1.10B
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
1.50B	1.50B	1.60B	1.22B	1.03B	932.40M
	Total Assets
10.38B	10.38B	10.55B	9.64B	9.23B	8.55B
	Total Debt
885.50M	885.50M	865.70M	881.20M	897.10M	898.80M
	Net Debt
-583.40M	-583.40M	-356.30M	511.20M	-98.10M	-6.40M
	Total Liabilities
6.58B	6.58B	7.05B	6.55B	6.28B	5.77B
	Stockholders Equity
3.80B	3.80B	3.49B	3.09B	2.95B	2.78B
Cash Flow		Free Cash Flow
1.56B	1.74B	1.56B	1.37B	1.15B	1.31B
	Operating Cash Flow
1.73B	1.90B	1.70B	1.51B	1.26B	1.44B
	Investing Cash Flow
-453.90M	-260.90M	218.50M	-1.42B	-460.60M	771.90M
	Financing Cash Flow
-3.18B	-1.87B	-711.40M	-979.30M	-636.40M	-1.49B

Paychex Technical Analysis

• Technical Analysis Sentiment: Positive
• Last Price: 152.00
• 50DMA: Positive
• 100DMA: Positive
• 200DMA: Positive
• MACD: Negative
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For PAYX, the sentiment is Positive. The current price of 152 is above the 20-day moving average (MA) of 149.16, above the 50-day MA of 144.68, and above the 200-day MA of 133.56, indicating a bullish trend. The MACD of 1.82 indicates Negative momentum. The RSI at 60.65 is Neutral, neither overbought nor oversold. The STOCH value of 79.83 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for PAYX.

Paychex Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
PCTY	81 Outperform	$11.42B	52.62	18.87%	―	15.96%	31.76%
PAYX	80 Outperform	$54.73B	31.98	43.80%	2.56%	4.18%	5.67%
INTU	79 Outperform	$171.61B	57.36	16.92%	0.65%	13.73%	9.93%
PAYC	78 Outperform	$12.61B	24.70	31.85%	0.68%	11.19%	51.03%
ADP	77 Outperform	$127.53B	32.70	77.46%	1.80%	7.09%	11.51%
GPN	73 Outperform	$25.52B	16.72	7.05%	0.97%	4.68%	63.39%
Sector *	62 Neutral	$8.11B	13.34	1.17%	3.02%	4.16%	-15.14%

Paychex Corporate Events

Paychex Acquires Paycor HCM for $4.1 Billion

Paychex has announced a definitive agreement to acquire Paycor HCM in an all-cash transaction valued at approximately $4.1 billion, enhancing its capabilities in the human capital management sector. The acquisition is set to expand Paychex’s offering of AI-driven HR solutions and deepen its penetration in the upmarket segment, promising significant cost synergies and revenue opportunities, while being expected to be accretive to earnings in the near future.