Earnings Preview: Paychex Inc. - Analyst Blog
26 Junho 2012 - 6:30AM
Zacks
Paychex Inc.
(PAYX) is scheduled to announce its fourth quarter fiscal 2012
results on June 28 after the closing bell, and we notice limited
upward movement in estimates at this point.
Third Quarter
Overview
Paychex delivered modest third
quarter 2012 results, with earnings of 37 cents per share matching
the Zacks Consensus Estimate. The 2.8% increase from the year-ago
quarter was on account of revenue improvement across all its
segments.
Revenues grew 7.2% year over year,
backed by increases of 12.3% in Human Resource Service revenue and
5.5% in Payroll Service revenue.
Higher operating expenses resulted
in operating margin contraction of 50 basis points year over
year.
Outlook
Paychex seemed a bit cautious about
the fiscal 2012 guidance. Keeping in view the current market and
economic condition, Paychex believes that checks per client will
moderate through fiscal 2012.
Agreement of
Analysts
Out of the 21 analysts providing
estimates for the fourth quarter, we noticed absolutely no
revision. Of the 23 estimates for fiscal 2012, only one went up in
the last 30 days.
The limited movement since Paychex
reported third quarter results suggests that there is a lack of
driving events.
But some analysts prefer to remain
cautious based on management’s commentary regarding the
sluggishness of new small-business formation. Moreover, a few
analysts think that aggressive pricing from Automated Data
Processing Inc. (ADP) is stealing customers away from
Paychex.
The time difference between when
the company receives payments from its clients and pays it out to
employees typically earns some interest for Paychex. Now, with the
government contemplating lower interest rates, this quick income
stream of the company will also be restricted.
Magnitude of Estimate
Revisions
There was no change in the Zacks
Consensus Estimate for the fourth quarter in the past 90 days. But
the estimate for fiscal 2012 moved forward by a penny to $1.52 in
the past 30 days. The estimate for fiscal 2013 remained unaltered
at $1.63.
Recommendation
The market is losing confidence on
the growth of the SMB group. The sector is being hit hard by
lackluster demand that comes on the heels of high unemployment and
inflation rates. Outsourcing companies like Paychex are highly
dependent on the performance of the SMB sector and this is the
reason why it may not see much revenue growth.
However, we are encouraged by
management’s positive commentary regarding continued investments in
product development and synergies from the recent acquisition of
Icon Time Systems in January 2012. In this environment, we believe
that cost control will play an important role for Paychex.
Despite new business wins in the
SMB sector, stiff competition from Automated Data Processing and
Insperity (NSP), and an uncertain unemployment
situation will remain constant worries. However, Paychex’ zero
European exposure will be benefit.
Paychex has a Zacks # 3 Rank,
implying a short-term Hold recommendation.
AUTOMATIC DATA (ADP): Free Stock Analysis Report
INSPERITY INC (NSP): Free Stock Analysis Report
PAYCHEX INC (PAYX): Free Stock Analysis Report
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