March 5, 2024

Paychex’s (NASDAQ:PAYX) Q3 Outlook Disappoints Investors, Stock Dips

Paychex (NASDAQ:PAYX) reported mixed Q2 performance. However, its Q3 revenue outlook disappoints investors, leading to a decline in its stock price, with the downward trend continuing after hours. Notably, shares of this payroll, HR (Human Resources), and insurance services provider dipped 7% on Thursday after it posted mixed Q3 financials. 

With this background, let’s look at the company’s Q2 financials and Q3 guidance.

A Brief Look at PAYX’s Q2 

Paychex delivered revenues of $1.26 billion in Q2, up 6% year-over-year. However, it fell short of the Street’s expectations of $1.27 billion. Nonetheless, the company said that it continues to see demand for its HCM (Human Capital Management) technology, HR, and insurance solutions, which is positive. 

It’s worth noting that Paychex is experiencing a slowdown in its top-line growth rate. Following a 7% increase in Q1, the rate moderated to 6% in Q2. Looking ahead to Q3, the company anticipates that the total revenue growth rate will fall at the midpoint of its projected range of 5% to 6%. This implies further sequential deceleration and irked investors. 

Coming to earnings, PAYX delivered adjusted earnings of $1.08 per share, up 9% from the prior-year quarter. Moreover, its adjusted EPS exceeded the Street’s forecast of 1.07. Looking ahead, the company once again raised its full-year earnings growth forecast. Paychex expects its adjusted earnings to increase by 10% to 11% in Fiscal 2024, up from its previous guidance of 9-10% growth.

Is Paychex a Buy or Sell?

Paychex shareholders haven’t had much to cheer about in 2023 as its stock is up about 6% year-to-date, underperforming the S&P 500 Index (SPX), which has gained about 22% during the same period. Meanwhile, analysts remain sidelined on PAYX stock. 

With two Buy, seven Hold, and two Sell recommendations, PAYX stock has a Hold consensus rating. Moreover, analysts’ average price target of $124 implies 4.29% upside potential from current levels. 


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