BMO Provides Some Color On Paychex Q4 Earnings

Paychex, Inc. PAYX reported its F4Q16 results with the EPS in line with the consensus and marginally ahead of the estimate.

BMO Capital’s Jeffrey M. Silber maintains a Market Perform rating on the company, while raising the price target from $55 to $58.

F4Q16 Results

Silber mentioned the “beat” in the quarter, as compared to the estimates, was primarily driven by revenue growth, which accelerated even if the impact of the Advanced Partners acquisition was excluded.

“As in prior quarters, much of the growth came from the Human Resource Services (HRS) segment with increases in the client base across all major services,” the analyst stated.

While the growth in payroll services beat the estimate, management reported relatively flat checks per payroll, while price increases were somewhat offset by discounts.

Related Link: Paychex Target Price Raised At Argus

2017 Guidance

Management issued the F2017 guidance with 8 percent net income growth, implying EPS of about $2.20 for the year, marginally below the prior consensus expectations but ahead of the estimate.

“In terms of FY2017 guidance, revenue guidance incorporated prior consensus expectations while net income guidance were slightly below,” Silber noted.

The Street had been expecting significant margin improvement, which management said would be “reinvested in growth initiatives.”

The F1Q17 EPS estimate has been lowered from $0.57 to $0.56, while the EPS estimate for FY2017 has been raised from $2.19 to $2.20.