Analysts Divided Over Paylocity Valuation Following 'Clean Beat-And-Raise' Q2

Paylocity Holding Corp PCTY, a provider of cloud-based payroll processing and human resource management software, reported second-quarter earnings per share and revenue figures Wednesday that were ahead of expectations.

The Analysts

Guggenheim Securities analyst Nandan Amladi maintained a Buy rating on the shares of Paylocity and raised the price target from $80 to $90.

Oppenheimer analyst Brian Schwartz maintained a Perform rating on the stock.

Raymond James analyst Brian Peterson reiterated an Outperform rating and hiked the price target from $75 to $88.

Guggenheim: Clean Beat-And-Raise 

Paylocity's commentary on demand for automation, efficiency and benchmarking data even in the downmarket 30-50-employee segment suggests the company's suite is competing well against entrenched players such as Paychex, Inc. PAYX and Automatic Data Processing ADP, Amladi said in a Wednesday note. 

The company's long-term targets of 20-25-percent revenue growth and a 30-35-percent EBITDA margin are achievable, the analyst said. 

Following the clean beat-and-raise print, Amladi said he remains a buyer of Paylocity shares.

Guggenheim said it believes the company, with a strong position in the 100-200-employee segment, can expand its success both up- and down-market.

See also: Jefferies Initiates Coverage Of Payroll Stocks

Oppenheimer Sees Balanced Risk-Reward Profile

Paylocity had a good Q2, with both results and guidance exceeding estimates, Schwartz said in a Thursday note.

The strong results and upgraded outlook support the valuation, which moved up ahead of the results, the analyst said. 

The key challenge will be whether the recent positive trends that have re-rated the valuation are sustainable without a cyclical pickup in the U.S. and record unemployment levels, Schwartz said. 

"We maintain a Perform rating owing to what we view is a fair valuation and balanced risk-reward profile at current price." 

Raymond James Encourages Accumulating Shares

Q2 performance was solid, with upside across all metrics, Peterson said in a Wednesday note. The $5.5-million bump to the FY19 guidance shows the upside is likely to continue through the year, he said. 

Raymond James said the one-turn discount at which the shares trade relative to the 20-30-percent growth group is unjustified, given that revenue growth and EBITDA margins are both in the mid-20-percent range.

"We think shares remain a core small-cap growth holding, and would encourage investors to continue accumulating shares," Peterson said. 

The Price Action

Reacting to the results, Paylocity shares were seen edging up 0.37 percent to $80.95 in pre-market trading.

Related Link: Software Competition For Paychex Keeps Guggenheim Neutral