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Pro-Investor Steps Boost Paychex (PAYX), Low Liquidity Bothers

·3 min read

Paychex, Inc. PAYX currently benefits from the rising opportunities in the professional employer organization (PEO) industry as well as investor-friendly steps.

PAYX’s earnings are anticipated to grow 9.8% and 7.4% in fiscal 2023 and fiscal 2024, respectively. NSP has a long-term earnings growth expectation of 7.5%.

Shares of PAYX have increased 17.2% in the past year compared with a 14% rise of the industry it belongs to.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Factors That Augur Well

Paychex appears to be striving to capitalize on the rising opportunities in the PEO industry. A PEO is a firm or a company from which organizations can outsource their HR functions, including payroll and benefits. Therefore, in our opinion, the 2017 acquisition of HR Outsourcing is a strategic fit for Paychex as more and more companies are willing to use PEO services rather than creating their in-house HR. The buyout is expanding the company’s services, thereby helping it add to its customer base.

Paychex makes consistent efforts to reward its shareholders through dividends and share repurchases. PAYX paid out dividends of $908.7 million, $889.4 million and $826.8 million each in fiscal 2021, 2020 and 2019 and repurchased shares worth $155.7 million, $171.9 million and $56.9 million, respectively, in the same time frames. Such initiatives not only boost investors’ confidence in the stock but also positively impact its earnings per share.

A Key Risk

Paychex’s current ratio (a measure of liquidity) stood at 1.25 at the end of fourth-quarter fiscal 2022, lower than the 1.27 recorded at the end of the prior fiscal quarter. A decreasing current ratio does not bode well for Paychex.

Zacks Rank and Stocks to Consider

Paychex currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the broader Zacks Business Services sector are Avis Budget Group, Inc. CAR, Genpact Limited G and CRA International, Inc. CRAI.

Avis Budget sports a Zacks Rank #1 at present. CAR has an earnings growth rate of 108.4% for 2022.

Avis Budget delivered a trailing four-quarter earnings surprise of 69.5%, on average.

Genpact carries a Zacks Rank #2 (Buy) at present. G has a long-term earnings growth expectation of 12.3%.

Genpact delivered a trailing four-quarter earnings surprise of 10.1%, on average.

CRA International flaunts a Zacks Rank of 1, currently. CRAI has a long-term earnings growth expectation of 14.3%.

CRAI delivered a trailing four-quarter earnings surprise of 26%, on average.

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Paychex, Inc. (PAYX) : Free Stock Analysis Report
Charles River Associates (CRAI) : Free Stock Analysis Report
Avis Budget Group, Inc. (CAR) : Free Stock Analysis Report
Genpact Limited (G) : Free Stock Analysis Report
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