Earnings preview: What to expect when Paychex reports Q3 results

Business services provider Paychex (PAYX) will be reporting financial results for the third quarter of fiscal 2019 on Wednesday before the opening bell. Market watchers predict that earnings will increase by about 40% year-over-year to $0.88 per share in the third quarter when sales are forecast to grow 24% to $1.07 billion.

The average sales estimate for the whole of fiscal 2019 is $3.69 billion, while sales are expected to move up to $4.02 billion next year.

It is expected that the services division will be the main growth driver in the third quarter. Contributions from the recent acquisitions, especially Oasis Outsourcing Group, will add to the revenue growth this time. Oasis is a leading professional employer organization, with a robust customer base, that joined the Paychex fold last year.

In the second quarter, the company’s earnings climbed 20% annually to $0.65 per share and beat the estimates. The upturn was driven by a 7% growth in revenues to $859 million amidst strong performance by the human capital management product line.

Though the bottom-line beat the estimates in most of the trailing quarters, a section of analysts maintains bearish sentiment towards the stock. The fact that the stock declined soon after the recent earnings reports calls for caution on buying before the upcoming announcement. The majority of the brokerages covering the stock have given it ‘hold’ rating with an average price target of $73.

Also see: Paychex Q2 2019 Earnings Conference Call Transcript

Earlier this year, Paychex’s rival Automatic Data Processing (ADP) posted an 8% increase in its second-quarter earnings to $3.5 billion, driving adjusted earnings higher by 30% to $1.34 per share. The results benefitted from the management’s aggressive transformation strategies.

Meanwhile, Paychex shares reached an all-time high of $79.67 early last week but retreated to the pre-peak levels towards the weekend. The stock gained 27% in the past twelve months and moved up 21% since the beginning of the year.

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