Paycom A Top Pick Among Payroll Vendors

On Tuesday, Paycom Software Inc PAYC reported estimate-beating Q3 earnings and revenue, but shares were trading down more than 16 percent.

“Expectations had risen ahead of earnings, with stock up 38 percent year-to-date and 4 percent quarter-to-date,” said UBS Global Research Analyst John Byun, who maintained a Buy rating while raising his price target from $58 to $61.

In previous quarters since the onset of the Affordable Care Act, Paycom has outperformed estimates to a greater margin. This slight beat of $0.03 on EPS and $0.59 million on revenue contrasts with investor hopes.

Byun noted three positives for the stock:

1. No identified issues with deal cadence, sales rep productivity, or competition.
2. FLSA’s new overtime rules.
3. Significant operating leverage.

Paycom’s fast growth, high margins and room for upside compared with the competition keeps the company as UBS’s top pick.