Paychex, Semco Partners Team Up

Zacks

Paychex Inc. (PAYX) recently announced a joint venture with Semco Partners to offer its services in Brazil.

The joint venture will help Paychex to expand into a new market. The expansion is also in line with the company’s international growth strategy.

Founded in the 1950s, Semco Partners is a portfolio management and investment firm that helps companies to set up their business in Brazil. A joint venture with Semco Partners has been the preferred path for several multinational companies to enter the Brazilian marketplace.

Earlier, in June, Paychex took over HR Services Inc., a provider of comprehensive HR solutions for an undisclosed sum. The acquisition added an applicant tracking system to its portfolio, which will attract professional employer organizations as they will be able to reduce operating costs.

Paychex reported fiscal fourth-quarter 2013 revenues of $585.3 million, up 6.1% from $551.5 million in the year-ago quarter. Payroll service segment revenues increased 3.5% year over year to $382.6 million. Checks per payroll grew roughly 0.9% from the year-ago quarter. Revenue per check grew modestly as a result of price increases, partially offset by discounting. Client retention rate was satisfactory.

Paychex, Inc. is a provider of payroll and human resource (HR) outsourcing services for small and medium-sized businesses (SMBs). Its offerings include comprehensive payroll services, including payroll processing, payroll tax administration and employee pay services.

The company’s initiatives to boost revenue growth through acquisitions are encouraging. Also, the improving trend in SMB IT spending could pave the way for Paychex in the coming quarters. But it is evident that low hiring in the SMB sector (leading to lower checks per client) and lack of new business wins have come in the way of solid revenue growth.

Despite stiff competition from Automated Data Processing (ADP) and Insperity, Paychex’ zero European exposure will be beneficial for the company.

Currently, Paychex has a Zacks Rank #3 (Hold). Investors may also consider stocks from the same sector such as Barrette Business Services (BBSI), Portfolio Recovery Associates Inc.(PRAA). While Barrette Business holds a Zacks Rank #1 (Strong Buy), Portfolio Recovery has a Zacks Rank #2 (Buy).

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