Paychex Target Price Raised At Argus

Paychex, Inc. PAYX reported 11 percent EPS growth for F4Q, in-line with the consensus estimate. There seems to room for the company to grow its core business, which serves small companies with fewer than 50 employees, Argus’ John Eade said in a report. He maintained a Buy rating on the company, while raising the price target to $70.

Paychex reported its 4Q16 results broadly in-line with the consensus estimates. Revenue came in at $754 million, representing 9 percent y/y growth, driven by strength in both Payroll and Human Resource Service revenues. Operating earnings grew 10 percent to $276 million, backed by margin expansion.

Management guided to 7-8 percent growth in total service revenue in FY16. The target operating margin is 38 percent.

Growth In The Core Business

Analyst John Eade commented that Paychex’s core business operates in a segment that continues to be underpenetrated, while “the economics of outsourcing payroll and HR services remain favorable.” The company is also expected to benefit in the longer run from an increase in short-term interest rates, which should boost earnings on funds held for clients.

Moreover, Paychex also appears poised to benefit from the implementation of the Affordable Care Act, which would initiative solutions to help with increasingly complex healthcare mandates, Eade mentioned.

Despite trading near the high-end of their 52-week range, the shares appear attractively valued. The analyst wrote further, “On fundamentals, PAYX shares appear attractive from several angles.”