J.P. Morgan Reiterates Underweight Rating on Paychex Following Mixed F4Q Results

In a report published Thursday, J.P. Morgan analyst Tien-tsin Huang reiterated an Underweight rating on Paychex PAYX. In the report, J.P. Morgan noted, “PAYX results were not as good as we expected, with light FY14 guidance and mixed F4Q results, with weaker than we expected service revenue and metrics growth, offset by better expense management resulting in a slight earnings beat. F4Q total revenues of $585M were in line w/ cons but below our $595M estimate, while EPS of $0.38 (ex $0.04 tax settlement charge) was in line with JPMe and a penny ahead of Street. Checks per payroll growth moderated a quarter earlier than we expected, with growth of 0.9% coming in below our 1.8% est. FY14 guidance was mildly below expectations, with a disappointing lack of earnings acceleration for next year. We expect a negative stock price reaction tomorrow ahead of the call, and remain UW shares as we see limited EPS upside and high valuation at 21.5x FY14E EPS or a rich NTM PEG of ~3.5x on normalized EPS growth.” Paychex closed on Wednesday at $37.99.