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Paychex Upgraded, And 2 Things That Would Further Increase Morgan Stanley's Constructive View

Analysts at Morgan Stanley no longer hold a bearish view of Paychex, Inc. (NASDAQ: PAYX) after the stock's 19 percent year-to-date underperformance compared to the S&P 500's track has created a more "balanced" risk to reward profile.

Morgan Stanley's Danyal Hussain upgrades Paychex's stock rating from Underweight to Equal Weight with an unchanged $55 price target as the stock's premium to the market is now at a 9-year low. Meanwhile, the company's management has acknowledged the elevated pricing pressure from competitors which is factored into the forward-looking guidance. As such, expectations now seem to "adequately capture the stock's downside risks versus its double-digit return profile."

Also, the stock does offer a 3.7 percent dividend yield, potential for stable earnings growth and positive interest rate leverage.

But shares of Paychex could have upside beyond $55 per share for two reasons:

Bottom line, the stock's current valuation premium of 3.8x is the lowest it has been since 2008, which gives the impression there is "little room for further multiple compression" moving forward.

Related Links:

Benzinga's Top Upgrades, Downgrades For August 16, 2017

The Market In 5 Minutes
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Image Credit: By DanielPenfield (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons

Latest Ratings for PAYX

Aug 2017

Morgan Stanley

Upgrades

Underweight

Equal-Weight

Jul 2017

William Blair

Downgrades

Outperform

Market Perform

Jun 2017

Goldman Sachs

Downgrades

Buy

Neutral

View More Analyst Ratings for PAYX
View the Latest Analyst Ratings

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© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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