Deutsche Bank Trims Paychex Estimates Below Street

Deutsche Bank cut its FY17 EPS forecast on Paychex, Inc. (NASDAQ: PAYX), despite the company's highlighting a potential return to +50bps of margin expansion.

"PAYX will likely continue to hold a premium valuation compared to peers due to its steady consistent results and solid dividend yield," analyst Bryan Keane wrote in a note.

Keane slashed his FY17 EPS view by $0.02 to $2.20 and introduced his FY18 EPS forecast of $2.38. The Street expects earnings of $2.21 for the current year and $2.40 for the next.

Keane, who maintained his Hold rating on the stock, however, raised the price target to $56 from $51.

Paychex, a provider of payroll, human resource and benefits outsourcing solutions, reported fourth-quarter earnings and revenues generally in line with the Street, as HRS growth offset slight underperformance in the core payroll business.

Commenting on the company's recent fourth quarter results, the analyst said Paychex' "Payroll business benefited from an increase in client base, revenue per check (price increases partially offset by discounts), one extra processing day and Advance Partners."

Paychex expects FY17 total services revenue growth in the range of 7 to 8 percent, driven by expectations for Payroll Services revenue growth of about 4 percent and expectations for HR Services revenue growth of 12 to 14 percent.

The company expects net income growth of about 8 percent and operating margins for FY17 to be about 38 percent.

Last week, Jason Kupferberg of Jefferies said, "While on the surface initial F17 guidance appears generally in line, we believe organic core payroll growth remains challenged and net income expectations are modestly below JEFe/Street."

Shares of Paychex closed Friday's regular trading session at $59.44.