RBC Capital Markets Upgrades Paycom Software On Employment Tailwind

Recent U.S. employment data bodes well for payroll vendors like Paycom Software Inc PAYC, suggesting upside to management’s guidance, which assumed flat employment, according to RBC Capital Markets.

The Paycom Software Analyst: Alex Zukin upgraded Paycom Software from Sector Perform to Outperform and raised the price target from $305 to $450.

The Paycom Software Thesis: The company appears to have a good setup for the third quarter, with 5%-8% upside to revenue, Zukin said in the upgrade note.

“The average beat vs. guidance last year was 2.6%; if both the normal beat and the employment tailwind occur, we believe upside could be to $202-207M (5.2%-7.7% above guidance),” the analyst said. 

The Street estimates assume sequential growth in the fourth quarter, but could prove to be aggressive, “given the 1-off headwind of an extra 1/2 paycycle in 3Q,” he said. 

Zukin expressed optimism around Paycom Software generating around 30% growth in 2021, driven by “stronger bookings and good employment tailwinds,” which could “lead to a re-rating of the stock.”

PAYC Price Action: Shares of Paycom Software were down 1.82% at $377.67 at last check Wednesday. 

Photo courtesy of Paycom.