Paychex, Inc. Just Beat EPS By 14%: Here's What Analysts Think Will Happen Next
A week ago, Paychex, Inc. (NASDAQ:PAYX) came out with a strong set of second-quarter numbers that could potentially lead to a re-rate of the stock. It was overall a positive result, with revenues beating expectations by 2.9% to hit US$984m. Paychex reported statutory earnings per share (EPS) US$0.75, which was a notable 14% above what the analysts had forecast. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
View our latest analysis for Paychex
Taking into account the latest results, Paychex's 18 analysts currently expect revenues in 2021 to be US$3.98b, approximately in line with the last 12 months. Statutory per-share earnings are expected to be US$2.91, roughly flat on the last 12 months. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$3.94b and earnings per share (EPS) of US$2.78 in 2021. The analysts seems to have become more bullish on the business, judging by their new earnings per share estimates.
The consensus price target rose 13% to US$92.89, suggesting that higher earnings estimates flow through to the stock's valuation as well. 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. The most optimistic Paychex analyst has a price target of US$110 per share, while the most pessimistic values it at US$74.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. 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%, compared to a historical growth rate of 7.8% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 14% per 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. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Paychex's revenues are expected to perform worse than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
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. We have estimates - from multiple Paychex analysts - going out to 2025, and you can see them free on our platform here.
Before you take the next step you should know about the 1 warning sign for Paychex that we have uncovered.
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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