Paychex Valuation Remains Rich

Payroll giant Paychex Inc PAYX is set to report its second quarter earnings before the market opens on Wednesday. Analysts at Bernstein are seeing continued pressure from competitors eating at Paychex’s core payroll business.

“We expect continued anemic payroll service growth, and continue to believe that PAYX’s competitive threats including ADP RUN, Intuit, and a fragmented set of small regional players will pressure PAYX,” Bernstein analysts said in a note.

Bernstein states that it will be paying close attention to commentary on operating metrics, including client growth, retention pricing, and pays-per-control on the call, to assess whether Paychex’s client growth improvement is sustainable.

While analysts believe Donald Trump’s fiscal stimulus platform will benefit Paychex and offset any potential Affordable Care Act related headwinds, fierce competition from small business players and rich valuation continue to weigh on Paychex future outlook.

“We believe cracks are starting to show in the form of soft customer metrics, and will, over time flow through to weaker revenue and earnings,” the firm said.

Bernstein maintains an Underperform rating with a $52 price target.