Stock Watch: Why you should add Paychex (PAYX) to your watchlist

Paychex, Inc. (NASDAQ: PAYX), a leading provider of integrated human capital management solutions, has expanded its business constantly over the years by diversifying the portfolio and through buyouts. The company has performed better than the broader market this year, thanks to its sticky client base and record-high retention levels.

The Rochester-based company’s stock climbed to a record high early last month, before retreating in the following weeks. It had gained steadily since the beginning of 2022, after making a weak start to the year. Interestingly, the macro headwinds have had a limited impact on PAYX, which can be attributed to the company’s effective business model.

Dividend Hike

The primary factor that makes the stock an attractive investment is the stable earnings performance. Last month, the board of directors declared a 20% hike in the quarterly dividend, which translates into a yield of around 2.5%. The company rewards shareholders regularly through share repurchases and dividends. However, at the current stock price of $120, the valuation looks high.

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Earnings: Highlights of DocuSign’s Q4 2022 financial results

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Considering the market uncertainty and macro headwinds, it would be a good idea to wait until conditions become more favorable before buying PAYX. Meanwhile, prospective investors can continue to keep an eye on it. That said, the stock’s resilience to the financial crisis and market selloff make it a good buying option for long-term investors.

 

“We’re finding good response to our SEM and SEO investments on brand and also the products that are worked well with us for sales in the last three quarters. So, we decided to continue to spend there. And then some of the investment in IT that we would have planned typically to start into the first quarter. We can move some of that up. We feel and accelerated to get the products out even a little faster that are coming up,” said Paychex’s CFO Efrain Rivera in a recent statement.

Strong Earnings

The company has been consistently profitable for a very long time, with the numbers mostly beating the estimates. In the past three years, earnings grew an impressive 10% annually. In the most recent quarter, double-digit revenue growth in the main operating segments of Management Solutions and PEO/Insurance Services drove up total revenues to a record high of $1.27 billion. Consequently, adjusted earnings grew by a fifth to $1.15 per share.

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Paychex Q3 2022 Earnings Call Transcript

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Encouraged by the stronger-than-expected third-quarter results, the management raised its full-year guidance. Paychex will be publishing fourth-quarter results on June 29 before the opening bell. The consensus estimate is for a 10% increase in earnings to $0.79 per share, on revenues of $1.11 billion.

PAYX experienced high volatility so far this year, but all along maintained a modest uptrend. This week, it traded broadly at the levels seen six months ago. The shares closed Thursday’s regular session slightly lower.