Ahead of Q4 Earnings, Analyst Sees Improved Climate For Paycheck

Paychex Inc.

shares gained nearly 1 percent Monday a day ahead of its expected fourth-quarter earnings release. JPMorgan's Stephanie Davis sees little likelihood of surprise from the payroll and benefits outsourcing company, and is focused on the company's fiscal 2015 outlook. Davis, who maintains and Underweight rating and $38 target, expects Paychex will predict 2015 earnings growth of 5 percent to 7 percent, on revenue growth of 7 percent to 9 percent. Accordingly, she forecasts 2015 profits of $1.86 a share on revenue of $2.63 billion. Analysts on average expect $1.84 a share on revenue of $2.62. An improving climate for small business as well as new rules related to Obamacare may boost outsourcing, Davis said in a note. Additionally, Davis believes higher interest rates in the coming year may boost float earned by Paychex on bank transfers. For the recent fourth quarter, Davis is in line with Wall Street expectations for earnings of 40 cents a share on revenue of $617.35 million. That compares with 38 cents a share on revenue of $585.3 million. The full-year consensus calls for profits of $1.71 a share on $2.47 billion in revenue, versus year-earlier results of $1.60 a share on revenue of $2.33 billion. Paychex is slated to post earnings after the market closes Tuesday. Near the close Friday, Paychex traded at $41.53, up 0.78 percent.