November 5, 2018

PAYX – Market expectations are for Uniform ROA to expand to record highs, but management has concerns about their margins, product enhancements, and innovation


  • Paychex, Inc. (PAYX:USA)currently trades near recent averages relative to UAFRS-based (Uniform) Earnings, with a 20.9x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management has concerns about their ability to expand their margins and to develop new products in the near future, and about the potential of new product enhancements
  • Specifically, management may lack confidence in their ability to sustain their client retention rates and maintain better than anticipated margins. Additionally, they may have concerns about the new enhancements to their HR Product Suite, particularly their new Paychex Flex Assistant, and their ability to move to the front of the low-end of the DIY/SaaS portion of the market. Finally, they may be exaggerating the PEO services momentum attributable to changes in the insurance industry, and may lack confidence in their ability to deliver new innovative ideas over the next few quarters
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