Categories Analysis, Technology

What you need to know ahead of Paychex’s (PAYX) Q3 2024 earnings

It is estimated that the company's adjusted earnings and revenues increased YoY in the February quarter

Human capital management solutions provider Paychex, Inc. (NASDAQ: PAYX) will report third-quarter results next week. The management’s outlook for the second half of 2024 is positive, reflecting the resilience of the small and medium-sized business sector, which accounts for a large portion of the company’s clientele.

The Rochester-based payroll services provider’s stock has made modest gains so far this year, but it is experiencing some weakness ahead of the earnings. The stock, which underperformed the market quite often in the recent past, is priced at a discount now. While it doesn’t look like a good time to jump in, PAYX has the potential to reward investors in the long term.  

Dividend Power

Paychex has been a consistent dividend payer over the past several years, marked by regular hikes except during the pandemic when the company temporarily suspended dividend payments. The current yield of 4.6% is much higher than the S&P 500 average.

When the firm releases third-quarter results on April 2, at 8:30 a.m. ET, market watchers will be looking for earnings of $1.37 per share, excluding special items. In the year-ago quarter, the company had earned $1.29 per share. The consensus revenue estimate for the February quarter is $1.46 billion.

What’s in Cards

The company bets on the emerging labor market trends, amid economic uncertainties, that call for effective HR strategies for enterprises to better align themselves with the challenging employment scenario. Meanwhile, inflation and elevated interest rates continue to weigh on business spending, especially among mid-sized enterprises, which doesn’t bode well for the company.

From Paychex’s Q2 2024 earnings call:

“The demand for our HR technology and advisory solutions remained strong as business leaders continue to face a very challenging small and mid-sized business environment. The tight labor market and rising healthcare and benefits costs are forcing many to rethink their HR and benefits strategies, and they can turn to Paychex as a trusted business partner in these times. As we sit here today, the selling season for our mid-market HCM and our PEO teams are in their final phases, and our insurance open enrollment is underway.”

Past Performance

For the past five years, the company’s quarterly earnings have consistently met or exceeded estimates. In the second quarter, adjusted profit moved up 9% from last year to $1.08 per share, and beat expectations by a cent. However, the top line missed the Street view, though revenues rose 6% annually to $1.25 billion. Management Solutions and PEO Services, which together account for about 98% of total revenues, grew 4% and 8% respectively.

On Tuesday, Paychex’s stock traded close to $120, after dropping 3% in the past 30 days. The shares have mostly stayed above their 12-month average price since the beginning of the year.

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