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Paychex (PAYX) Q2 Earnings: Will the Stock Disappoint?
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Paychex Inc. (PAYX - Free Report) is set to report second-quarter fiscal 2017 results on Dec 21. Last quarter, the payroll and human resource solutions provider posted a positive earnings surprise of 5.3%. Notably, in the past four quarters, the company outperformed the Zacks Consensus Estimate twice and matched the same on two occasions. This represents an average positive earnings surprise of 1.8%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
We are slightly cautious about Paychex’s near-term prospects as the company’s business may be affected by the prevailing weak economic conditions as employment levels tend to decline and interest rates may become more volatile.
Lower or falling interest rates generally cause Paychex’s float income to decline. These conditions may have an adverse effect on Paychex’s business owing to lower transaction volumes or loss of clients.
Potential clients tend to lower their overall spending on payroll and other outsourcing services. We believe that this will cause Paychex to come under pressure, thereby reducing revenue growth potential in the future.
Moreover, intense competition in the outsourcing space from major players like Automated Data Processing Inc. (ADP - Free Report) and Insperity could add to its woes.
Nonetheless, Paychex’s sustained investments in product development and focus on building its sales force to drive revenue growth are positive. We also believe that the company’s expansionary initiatives, such as joint ventures and acquisitions, support its long-term growth strategy.
Our proven model does not conclusively show that Paychex will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below:
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 55 cents. Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Paychex carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are a couple of stocks that you may consider as our model shows that they have the right combination of elements to post an earnings beat in their upcoming releases:
Micron Technology (MU - Free Report) with Earnings ESP of +8.33% and a Zacks Rank #2.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>
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Paychex (PAYX) Q2 Earnings: Will the Stock Disappoint?
Paychex Inc. (PAYX - Free Report) is set to report second-quarter fiscal 2017 results on Dec 21. Last quarter, the payroll and human resource solutions provider posted a positive earnings surprise of 5.3%. Notably, in the past four quarters, the company outperformed the Zacks Consensus Estimate twice and matched the same on two occasions. This represents an average positive earnings surprise of 1.8%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
We are slightly cautious about Paychex’s near-term prospects as the company’s business may be affected by the prevailing weak economic conditions as employment levels tend to decline and interest rates may become more volatile.
Lower or falling interest rates generally cause Paychex’s float income to decline. These conditions may have an adverse effect on Paychex’s business owing to lower transaction volumes or loss of clients.
Potential clients tend to lower their overall spending on payroll and other outsourcing services. We believe that this will cause Paychex to come under pressure, thereby reducing revenue growth potential in the future.
Moreover, intense competition in the outsourcing space from major players like Automated Data Processing Inc. (ADP - Free Report) and Insperity could add to its woes.
Nonetheless, Paychex’s sustained investments in product development and focus on building its sales force to drive revenue growth are positive. We also believe that the company’s expansionary initiatives, such as joint ventures and acquisitions, support its long-term growth strategy.
PAYCHEX INC Price and EPS Surprise
PAYCHEX INC Price and EPS Surprise | PAYCHEX INC Quote
Earnings Whispers
Our proven model does not conclusively show that Paychex will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below:
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 55 cents. Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Paychex carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are a couple of stocks that you may consider as our model shows that they have the right combination of elements to post an earnings beat in their upcoming releases:
Western Digital Corporation (WDC - Free Report) with Earnings ESP of +16.8% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Micron Technology (MU - Free Report) with Earnings ESP of +8.33% and a Zacks Rank #2.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>