Tags: Paychex | dividend | tech | PAYX

Paychex Offers Strong Dividend Along with Tech Edge

By    |   Tuesday, 19 June 2012 09:37 AM

Paychex (PAYX) combines a strong dividend payout with the attraction of leading its industry into new frontiers online through software-as-a-service technology. As the payroll processor expands into new areas, including retirement advising, that type of cost-reduction through tech should give it an edge.

Paychex is a provider of payroll, human resource, and benefits outsourcing solutions for small- to medium-sized businesses. It has approximately 564,000 clients and 12,400 employees. In addition, it services 1,900 clients in Germany through four offices.

Paychex has a broad portfolio of services and products to meet diverse payroll and human resource needs. These include payroll processing, tax administration, employee payment services, compliance, human resource solutions, retirement services, insurance services, and online services.

“By offering ancillary services that leverage the information gathered in the base payroll processing service, we are able to provide comprehensive outsourcing services that allow employers to expand their employee benefits offerings at an affordable cost,” Paychex management said in a recent filing.

“We mainly earn our revenue through recurring fees for services performed. Service revenue is primarily driven by the number of clients, checks or transactions per client per pay period, and utilization of ancillary services.”

Online payroll and financial advising services are two growth areas for the company, management said in a recent earnings call.

“We have reaffirmed our expectations on full year guidance provided last June. We expect that increases in checks per client will continue to moderate, and we also expect to continue our planned investments in our business, which will impact our operating income margin,” Paychex President and CEO Martin Mucci told analysts.

Paychex has a market cap of $11.72 billion in a sector, IT services, where the average company size is $9.83 billion. Its trailing 12-month P/E ratio is 21.55 and its five-year projected price-to-earnings-growth (PEG) ratio is 2.17, compared to 1.15 for the sector.

Its projected earnings per share growth for the coming year is 7.24 percent, compared to a sector average of 13.02 percent.


Analysts are positive on PAYX, with buy or outperform calls from UBS, Credit Suisse, and Standard & Poor’s Equity Research.

“We are seeing some improvements in the employment market, as well as some strength in small business lending, a metric that is watched by PAYX. We continue to expect modest improvements in PAYX's fundamentals, and we anticipate increased traction from efforts to revitalize the sales force,” S&P analysts said in early April.

“We view the balance sheet as strong, with no debt and over $500 million in cash and corporate investments. We also point to the shares' recent 4 percent-plus dividend yield.”

Paychex next reports on June 27.

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Tuesday, 19 June 2012 09:37 AM
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