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1. Company Snapshot

1.a. Company Description

Paychex, Inc.provides integrated human capital management solutions for human resources (HR), payroll, benefits, and insurance services for small to medium-sized businesses in the United States, Europe, and India.It offers payroll processing services; payroll tax administration services; employee payment services; and regulatory compliance services, such as new-hire reporting and garnishment processing.


The company also provides HR solutions, including payroll, employer compliance, HR and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained HR representative; and retirement services administration, including plan implementation, ongoing compliance with government regulations, employee and employer reporting, participant and employer online access, electronic funds transfer, and other administrative services.In addition, it offers cloud-based HR administration software products for employee benefits management and administration, time and attendance, digital communication solutions, recruiting, and onboarding solutions; plan administration outsourcing and state unemployment insurance services; various business services to small to medium-sized businesses comprising payroll funding and outsourcing services, which include payroll processing, invoicing, and tax preparation; and payment processing services, financial fitness programs, and a small-business loan resource center.Further, the company provides insurance services for property and casualty coverage, such as workers' compensation, business-owner policies, cyber security protection, and commercial auto, as well as health and benefits coverage, including health, dental, vision, and life.


It markets and sells its services primarily through its direct sales force.The company was founded in 1971 and is headquartered in Rochester, New York.

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1.b. Last Insights on PAYX

The recent 3-month performance of Paychex, Inc. was negatively driven by disappointing FY'26 guidance, which seemed to offset the 10% year-over-year revenue growth and 6% adjusted earnings increase in Q4 FY'25. The company's acquisition of Paycor, a human capital management software maker, contributed to most of its gains, but failed to impress investors. Additionally, Paychex's revenue missed sales estimates, and its mixed fiscal-year guidance further dampened investor sentiment.

1.c. Company Highlights

2. Paychex's Q2 FY2026 Earnings: A Strong Performance Amidst Integration and AI Advancements

Paychex, Inc. reported a solid second-quarter performance for fiscal 2026, with revenue growing 18% year-over-year to $1.6 billion and adjusted operating income increasing 21%. The company's Management Solutions revenue rose 21% to $1.2 billion, driven by product penetration and price realization. Notably, Paycor contributed approximately 17 percentage points to the growth. Operating margin was 41.7% in the quarter, driven by increased productivity and continued cost discipline. Diluted earnings per share decreased 4% to $1.10 per share, while adjusted diluted earnings per share increased 11% to $1.26 per share, beating analyst estimates of $1.23.

Publication Date: Dec -20

📋 Highlights
  • Revenue Growth: Revenue surged 18% YoY to $1.6 billion, with Management Solutions contributing $1.2 billion (21% growth), driven by Paycor's 17% point contribution.
  • Adjusted Operating Margin: Operating margin expanded to 41.7%, reflecting productivity gains and cost discipline, alongside 21% adjusted operating income growth.
  • EPS Performance: Adjusted diluted EPS rose 11% to $1.26, while GAAP EPS fell 4% to $1.10 due to tax impacts and integration costs.
  • Paycor Integration: $100 million in fiscal 2026 cost synergies expected from Paycor, adding $10 billion to total addressable market and driving double-digit growth potential.
  • AI Adoption: AI-driven payroll processing achieved 100% accuracy, cutting processing time and enabling higher-value client advisory services, with plans to monetize AI-enhanced product features.

Segment Performance

The PEO segment performed well, with demand and retention being strong, although health care inflation is a challenge. Revenue grew high single digits with double-digit demand and near-record retention. The company sees opportunities in its PEO offering, particularly with Paycor clients, and has been pleased with early progress. The Management Solutions segment's organic growth rate is expected to improve from the current 4% levels in the second half of the year, with modest acceleration towards a 5% range over time.

Guidance and Outlook

The company raised its earnings expectations for fiscal 2026, with adjusted diluted earnings per share now expected to grow between 10-11%. However, given some trends, the company expects to come in towards the low end of the ranges for management solutions, PEO, and insurance, and total revenue. Revenue growth guidance for Q3 is 18%, with expected acceleration on the PEO side. The company expects Paycor to grow in double digits, possibly in the low double-digit range.

AI Advancements and Integration

Paychex has been investing in AI, with its Agenic AI pilots handling thousands of payroll calls and emails with nearly 100% accuracy, decreasing payroll processing time, and enabling service teams to focus on higher-value strategic advisory support. The company believes it is well-positioned to succeed in the AI era, with a strong track record of delivering pragmatic AI solutions focused on measurable outcomes. The integration of Paycor has added $10 billion to the company's total addressable market, providing a promising runway for growth.

Valuation

With a P/E Ratio of 25.31 and an EV/EBITDA of 17.97, the market seems to be pricing in a certain level of growth and profitability. The company's ROE of 39.66% and ROIC of 17.96% indicate a strong ability to generate returns on equity and invested capital. Analysts estimate next year's revenue growth at 16.9%, which is slightly lower than the current year's growth rate but still indicates a strong growth trajectory.

3. NewsRoom

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U.S. Small Business Employment Trends Hold Steady to Start 2026

13:30

Source: businesswire.com

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Why the 5 Highest-Yielding Nasdaq 100 Stocks Are 2026 Boomer Safety Nets

12:44

Source: 247wallst.com

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Top 10 High-Yield Dividend Stocks For February 2026

11:22

Source: seekingalpha.com

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AE Wealth Management LLC Raises Holdings in Paychex, Inc. $PAYX

08:32

Source: defenseworld.net

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Why Paychex Stock Is Primed For A Breakout From Current Levels

Feb -02

Source: forbes.com

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Cooper Haims Advisors LLC Purchases 5,243 Shares of Paychex, Inc. $PAYX

Feb -02

Source: defenseworld.net

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Top 15 High-Growth Dividend Stocks For February 2026

Feb -02

Source: seekingalpha.com

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New York State Common Retirement Fund Trims Stock Position in Paychex, Inc. $PAYX

Feb -01

Source: defenseworld.net

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (5.00%)

6. Segments

Staffing & Outsourcing Services

Expected Growth: 5.0%

Paychex's Staffing & Outsourcing Services growth of 5.0% is driven by increasing demand for HR and payroll outsourcing, expansion of services to existing clients, and strategic acquisitions. The segment benefits from a strong economy, labor market growth, and businesses seeking to streamline operations, leveraging Paychex's expertise and technology.

7. Detailed Products

Paychex Flex

A cloud-based payroll and human capital management software that provides a comprehensive suite of tools for payroll processing, benefits administration, and HR management.

Paychex Online Payroll

A web-based payroll processing service that allows businesses to manage payroll, tax compliance, and benefits administration.

Paychex Time and Attendance

A time and attendance tracking system that helps businesses manage employee hours, track time off, and monitor labor costs.

Paychex Benefits Administration

A benefits administration platform that helps businesses manage employee benefits, including health insurance, retirement plans, and other employee perks.

Paychex HR

A human capital management platform that provides tools for HR management, including employee data management, performance management, and compliance support.

Paychex Accounting Services

An accounting and bookkeeping service that provides businesses with financial statement preparation, account reconciliations, and other accounting support.

8. Paychex, Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Paychex, Inc. provides payroll processing services, human resources services, and benefits administration, which are essential services for businesses. The threat of substitutes is low because switching to alternative service providers can be costly and time-consuming for clients, and Paychex's services are integrated into clients' business operations.

Bargaining Power Of Customers

Paychex's clients are primarily small- to medium-sized businesses, which can be price-sensitive. However, Paychex's services are essential, and clients are likely to prioritize reliability and quality over price. This gives Paychex some pricing power, but customers still have some bargaining power due to the availability of alternative service providers.

Bargaining Power Of Suppliers

Paychex's suppliers are primarily technology providers and other service providers. These suppliers are likely to be large and have limited bargaining power over Paychex, as Paychex is a significant customer for them. Additionally, Paychex can likely switch suppliers if needed, which reduces the bargaining power of suppliers.

Threat Of New Entrants

The threat of new entrants is medium because while there are barriers to entry in the payroll processing industry, such as regulatory requirements and high start-up costs, new entrants can still emerge. However, Paychex's strong brand reputation, extensive client base, and integrated services make it difficult for new entrants to compete directly.

Intensity Of Rivalry

The intensity of rivalry in the payroll processing industry is high due to the presence of several large players, such as ADP and Paycor. These competitors offer similar services, and competition is likely to be intense on price, service quality, and innovation. Paychex must continually invest in its services and technology to remain competitive.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 18.89%
Debt Cost 5.53%
Equity Weight 81.11%
Equity Cost 8.79%
WACC 8.17%
Leverage 23.30%

11. Quality Control: Paychex, Inc. passed 7 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
TransDigm Group

A-Score: 7.0/10

Value: 3.0

Growth: 8.0

Quality: 6.7

Yield: 9.0

Momentum: 7.0

Volatility: 8.3

1-Year Total Return ->

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Stock-Card
PACCAR

A-Score: 6.0/10

Value: 4.1

Growth: 6.7

Quality: 5.0

Yield: 8.0

Momentum: 4.0

Volatility: 8.3

1-Year Total Return ->

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Stock-Card
Paychex

A-Score: 6.0/10

Value: 2.1

Growth: 5.8

Quality: 9.0

Yield: 7.0

Momentum: 2.5

Volatility: 9.3

1-Year Total Return ->

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Korn Ferry

A-Score: 5.8/10

Value: 6.6

Growth: 5.7

Quality: 6.3

Yield: 4.0

Momentum: 3.5

Volatility: 9.0

1-Year Total Return ->

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ADP

A-Score: 5.7/10

Value: 2.0

Growth: 6.7

Quality: 7.1

Yield: 5.0

Momentum: 3.5

Volatility: 10.0

1-Year Total Return ->

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Barrett Business Services

A-Score: 4.9/10

Value: 4.7

Growth: 5.6

Quality: 6.2

Yield: 2.0

Momentum: 3.0

Volatility: 7.7

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

97.92$

Current Price

97.92$

Potential

-0.00%

Expected Cash-Flows