Software Competition For Paychex Keeps Guggenheim Neutral

Paychex, Inc. PAYX reported marginally better-than-expected Q2 results this week and maintained its 2019 guidance excluding the Oasis acquisition.

The Analyst

Guggenheim Securities’ Nandan Amladi maintains a Neutral rating on Paychex with an unchanged $75 price target.

The Thesis

Paychex reported Q2 revenue and EPS of $858.9 million and 65 cents, respectively, marginally beating Street estimates of $858.2 million and 63 cents.

The results were supported by higher interest income, with healthy demand for the company’s professional employer organization offerings and near record-high payroll client retention, Amladi said in a Wednesday note. 

The 2019 guidance — which excludes the HR firm Oasis — reflects double-digit growth in PEO for the rest of the year, with payroll in the mid-single digits, the analyst said.

“We believe price increases will remain part of the story and PAYX is able to upsell to its installed base and get better ASPs after winning the initial business, but the end-market pricing remains competitive,” Amladi said.

Paychex is poised for PEO-driven topline growth, he said.

The Oasis acquisition would enable Paychex to grow in purchasing health insurance and increase its geographic footprint, in Guggeheim's view.

Although the Oasis acquisition represents an opportunity for margin expansion in the back half of the year, there are limited catalysts for outperformance given the stiff competition being faced by the software side of the Paychex business, Amladi said. 

Price Action

Paychex shares were down 0.85 percent at $64.21 at the time of publication Thursday. 

Related Links:

Paychex Q2 Earnings Preview

Paychex to Acquire Oasis Outsourcing