PAYX Earnings Preview: Paychex likely to report strong results for Q2 2024

Paychex, Inc. (NASDAQ: PAYX) is set to publish financial data for the second quarter on Thursday morning. Of late, the company has been working to align the business with the rapidly changing market environment, by leveraging its extensive data set and incorporating artificial intelligence into the offerings. Headquartered in Rochester, the company provides human resource and payroll services, mainly to small and medium-sized businesses.

The Stock

Paychex’s shares bounced back after dropping early last month and have maintained the upswing since then. Currently hovering near last year’s all-time high, PAYX is likely to stay on the growth path in the near term and set new records. The company’s growing client base, recent improvements in the job market, and the general uptick in hiring are good news for investors. However, the valuation is not cheap, though it has not changed much from the value recorded two years ago.  

For Paychex, a key priority is ramping up the services through innovation and adoption of new technology. It bets on its comprehensive HR portfolio and efforts to harness the power of AI, to tap into the growing demand for HR software and advisory services. The company has a successful business model that helps drive stable demand, but it faces the risk of losing market share due to growing competition, from the likes of Gusto and Automatic Data Processing.  

Estimates

When the November quarter report comes on December 21, before markets open, Wall Street will be looking for an adjusted net income of $1.07 per share, which represents a year-over-year increase of about 8%. Analysts’ consensus revenue estimate is $1.27 billion, compared to $1.19 billion in the year-ago quarter.

“Small businesses, which are central to the U.S. economy, continue to show resiliency. Our Small Business Employment Watch has shown that small businesses continue to add workers at sustained, but modest rates, also the trend in wages is showing some cooling in wage growth consistent with overall inflation. Our data indicate a continued stable macro-environment for small and mid-sized businesses. We continue to monitor our leading indicators and are prepared to take appropriate actions to navigate any changes,” Paychex’s CEO John Gibson said in a recent statement.

Q1 Results Beat

In the first three months of 2024, Paychex’s earnings, excluding special items, increased 11% annually to $1.14 per share. Reported net income rose 11% to $419.2 million and EPS grew 10% to $1.16. The bottom line benefitted from a 7% increase in revenues to $1.28 billion as all three operating segments expanded during the period. Interestingly, earnings and revenues beat estimates almost every quarter in the past four years.

Anticipating the recent upswing to extend into the final months of the year, the management predicts that adjusted EPS will grow 9-11% in fiscal 2024. It is looking for full-year revenue growth of 6-7%. The outlook reflects the recent moderation in job and wage growth, though they have improved from the pre-pandemic levels.

PAYX has stayed above its 1-year average value since last month. This week it opened higher and traded up 1% on Monday afternoon, ahead of the upcoming earnings.