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Paychex Jumps 4% on Better-Than-Expected Q1 Results
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Paychex Jumps 4% on Better-Than-Expected Q1 Results

Paychex, Inc. (PAYX) reported better-than-expected first-quarter results with double-digit growth in both revenue and earnings. The robust results were driven by the economic rebound, continued sales momentum, and strong client retention rates. Shares jumped 4.3%, closing at $112.48 on September 30.

Paychex is a provider of human resource, payroll, and benefits outsourcing services for small- to medium-sized businesses. With a market cap of $40.56 billion, shares have gained 41.7% over the past year. (See Paychex stock charts on TipRanks)

The company reported adjusted earnings of $0.89 per share, up 41% year-over-year and much better than analysts’ estimates of $0.80 per share.

To add to that, revenue grew 16% year-over-year to $1.08 billion and surpassed the Street’s estimate of $1.04 billion. Revenue growth was attributed to strength in both digital and HR Outsourcing sales and solid growth in the mid-market space.  

Commenting on the results, Martin Mucci, President, and CEO of Paychex said, “Our client retention was a function of the resilience of small businesses and the value provided by our unique blend of technology solutions and expertise that help our clients navigate this challenging environment… We have a track record of technological innovation backed by world-class service and we continue to execute on our commitment to deliver Human Capital Management (HCM) solutions that make life simple for our clients.”

Based on the current economic environment and business momentum, the company raised its full-year Fiscal 2022 guidance for revenue to grow by 8% year-over-year, with adjusted earnings forecast to grow between 12% and 14%.

In response to Paychex’s solid financial performance, Stifel Nicolaus analyst David Grossman lifted the price target on the stock to $118 (4.9% upside potential) from $114 while maintaining a Hold rating.  

Grossman noted that after normalizing for the pandemic-related impact on comparisons, PAYX’s first-quarter results and FY22 guidance are in line with pre-pandemic levels. Also, the analyst expects the favorable environment to continue.    

Overall, the stock has a Moderate Sell consensus rating based on 3 Holds and 2 Sells. The average Paychex price target of $115.80 implies 3% upside potential to current levels.

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