Paylocity Notches Upgrade On Projections Of Sustained Revenue Growth

Paylocity Holding Corp PCTY, a cloud-based payroll processor, is an attractive asset with nice line-of-sight into $1 billion in annualized revenues and 30-percent-plus adjusted EBITDA margins in the long term, according to SunTrust Robinson Humphrey.

The Analyst

SunTrust Robinson Humphrey analyst Terry Tillman upgraded Paylocity Holding from Hold to Buy and increased the price target from $48 to $66, suggesting 25-percent upside from current levels.

The Thesis

Paylocity remains on track to report sustained 20-percent-plus revenue growth and solidly exceed its previous long-term operating margin and profitability goals, Tillman said in a Monday note.

The company's R&D investments have yielded numerous products that enhance Paylocity's price-per-employee-per-year products and improved its human capital management functionality, the analyst said. 

The BeneFLEX acquisition expanded Paylocity's value proposition and revenue opportunity in the benefits management market, Tillman said. 

Once the integration of BeneFLEX is complete, SunTrust expects its technology to drive higher ARPU in 2019 and 2020.

The sell-side firm's 2018 and 2019 estimates remain intact, with 2018 total revenue and non-GAAP earnings per share estimates at $564.3 million and $1.46, respectively, both of which are above consensus estimates.

"Overall the mid-market for payroll and HCM solutions is highly attractive based on catalysts including modernizing HR processes and systems and share gains versus legacy payroll service bureau providers," Tillman said. 

The Price Action

Paylocity shares are up about 45 percent over the past year.

The stock was up 4.87 percent at $55.29 at the close Monday. 

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