Analysts Downgrade Paycom Software Stock After Inferior Outlook, Stock Loses ~40%

Piper Sandler analyst Arvind Ramnani downgraded Paycom Software Inc PAYC from Overweight to Neutral and lowered the price target from $399 to $185.

PAYC’s revenue growth was below expectations, and initial FY24 revenue targets were 11% at the mid-point. 

While the company had talked down expectations in August, revenue is decelerating faster than anticipated. Underlying drivers include macro headwinds, BETI cannibalization, and “strategic initiatives” that “strengthen the value clients receive.” 

The analyst projects Q4 revenue of $422.3 million (consensus $452.27 million) and EPS of $1.82 (consensus $1.99).

Keybanc analyst Jason Celino downgraded Paycom from Overweight to Sector Weight.

The re-rating reflects the heightened near-term execution risk, posing a more challenging path to high-teens and low-20% growth. PAYC posted lower 3Q results and 4Q guide, attributing shortfall to BETI cannibalization, lower cross-sell activity, and macro. More importantly, PAYC sees headwinds continuing into 2024 and provided a meaningfully lower initial growth outlook of 10-12% (vs. consensus 21%). 

The analyst projects Q4 revenue of $422.8 million (prior $452.3 million) and EPS of $1.80.

Needham analyst Joshua Reilly downgraded Paycom from Buy to Hold.

Stifel analyst Brad Reback downgraded Paycom from Buy to Hold and lowered the price target from $400 to $160.

Paycom reported 3Q23 revenue below the low end of guidance and issued 4Q23 guidance $30mm below the implied mid-point. BETI revenue cannibalization is much more significant than estimated, leading to FY24 initial guidance well below the Street. 

The re-rating reflects the much lower growth anticipated through 2024 due primarily to the BETI headwind combined with lower cross-sales and a potentially deteriorating macro hurting new sales bookings. 

The analyst notes that the next six quarters will be challenging due to the BETI transition and the weak macro.

The analyst projects Q4 revenue of $422.6 million and EPS of $1.78 (prior $1.97).

BMO Capital analyst Daniel Jester maintained Paycom with a Market Perform and lowered the price target from $320 to $190.

The challenges facing Paycom are now fully exposed following the 3Q miss and guide down for 2024. Optimistically, next year could be a transition period to a new level of durable growth in 2025+ as it addressed BETI challenges. 

Conversely, the pace of deceleration in a competitive mid/large business HCM market could imply acute issues. Jester notes an extended recalibration process in a challenging macro environment.

The analyst projects Q4 revenue of $422 million (prior $452 million) and EPS of $1.74 (prior $1.97).

Barclays analyst Raimo Lenschow maintained Paycom with an Equal-Weight and lowered the price target from $294 to $200.

In the short term, PAYC will see meaningful share price pressure as Q4, and more importantly, the FY24 revenue outlook will be much lower than feared. Macro plays some role, but the more significant issue seems to be the BETI transition, which should be temporary.

Mizuho analyst Siti Panigrahi maintained Paycom with a Neutral and lowered the price target from $325 to $185.

Paycom missed Q3 expectations, lowered its 2023 guidance, and provided a preliminary 2024 outlook of 10-12% Y/Y growth vs consensus expectations of 21%. Management attributed the weakness to Beti cannibalizing its services revenues and continued CRR impacts, resulting in weaker cross-sells. 

The analyst projects Q4 revenue of $423 million (prior $452 million) and EPS of $1.75 (prior $1.98).

Price Action: PAYC shares closed lower by 38.50% at $150.69 on Wednesday.