Earnings Preview: Paychex Inc. (revised) - Analyst Blog
29 Março 2012 - 7:19AM
Zacks
Paychex Inc. (PAYX)
is scheduled to announce its third quarter fiscal 2012 results on
March 28 after the closing bell, and we notice no movement in
analyst estimates at this point.
Second Quarter
Overview
Paychex delivered modest second
quarter 2012 results, with earnings of 39 cents per share beating
the Zacks Consensus Estimate by a penny. The quarter’s results
indicate slow recovery in the small and medium business (SMB)
sector due to deceleration in high unemployment and inflation
rates.
Paychex’ second quarter revenues
grew 6.6% year over year, backed by increases of 12.5% in Human
Resource Service revenue and 4.8% in Payroll Service revenue.
A modest revenue growth and better
cost management led to operating margin expansion of 640 basis
points year over year. Nevertheless, 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, impacting quarterly comparisons
for both Payroll Service and Human Resource Service revenues.
Moreover, Paychex believes that the
favorability in expenses realized in the second quarter may not be
realized throughout fiscal 2012 due to the planned investments in
its business.
For more details of second quarter
earnings, please visit: Paychex Beats Despite SMB Slowdown.
Agreement of
Analysts
Out of the 20 and 23 analysts
providing estimates for the third quarter and fiscal 2012,
respectively, none made any revision in the last 30 days. Also, no
change was noticed in the estimates provided for fiscal 2013.
But some analysts prefer to remain
cautious based on management’s commentary regarding the
sluggishness in 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 third quarter or fiscal 2012 over the
past 30 days. We also see that there was no change in estimates
over the past 90 days, implying that analysts have stuck to their
estimates post second quarter results.
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. We
also believe that cost control will play an important role for
Paychex, going forward.
Though new business wins in the SMB
sector, and stiff competition from ADP and
Insperity (NSP) will remain a constant worry, we
believe that Paychex can benefit from the improvement in the U.S.
employment situation. Hence, considering the situation and keeping
in mind Paychex’ consistency in delivering impressive results and
zero European exposure, we expect a constructive quarter ahead.
Paychex has a Zacks #3 Rank,
implying a short-term Hold recommendation.
(We are reissuing this article
to correct a mistake. The original revision, issued yesterday,
March 28, 2012, should no longer be relied upon.)
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PAYCHEX INC (PAYX): Free Stock Analysis Report
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