June 26, 2022

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Earnings Beat: Paychex, Inc. Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Models

Paychex, Inc. (NASDAQ:PAYX) investors will be delighted, with the company turning in some strong numbers with its latest results. Paychex beat earnings, with revenues hitting US$984m, ahead of expectations, and statutory earnings per share outperforming analyst reckonings by a solid 14{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}. Earnings are an important time for investors, as they can track a company’s performance, look at what the analysts are forecasting for next year, and see if there’s been a change in sentiment towards the company. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year. earnings-and-revenue-growthNasdaqGS:PAYX Earnings and Revenue Growth December 27th 2020

Following last week’s earnings report, Paychex’s 18 analysts are forecasting 2021 revenues to be US$3.98b, approximately in line with the last 12 months. Statutory per share are forecast to be US$2.91, approximately in line with the last 12 months. Before this earnings report, the analysts had been forecasting revenues of US$3.94b and earnings per share (EPS) of US$2.78 in 2021. So the consensus seems to have become somewhat more optimistic on Paychex’s earnings potential following these results.

The analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 13{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} to US$92.89. That’s not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on Paychex, with the most bullish analyst valuing it at US$110 and the most bearish at US$74.00 per share. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.

Of course, another way to look at these forecasts is to place them into context against the industry itself. It’s pretty clear that there is an expectation that Paychex’s revenue growth will slow down substantially, with revenues next year expected to grow 0.2{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}, compared to a historical growth rate of 7.8{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 14{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} next year. Factoring in the forecast slowdown in growth, it seems obvious that Paychex is also expected to grow slower than other industry participants.

The Bottom Line

The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Paychex’s earnings potential next year. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.

With that in mind, we wouldn’t be too quick to come to a conclusion on Paychex. Long-term earnings power is much more important than next year’s profits. At Simply Wall St, we have a full range of analyst estimates for Paychex going out to 2025, and you can see them free on our platform here..

Plus, you should also learn about the 1 warning sign we’ve spotted with Paychex .

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.