RBC initiates coverage on Paychex at Sector Perform, sees tailwinds for revenue growth
Wolterk/iStock Editorial via Getty Images
RBC Capital Markets initiated coverage on Paychex (NASDAQ:PAYX) at Sector Perform with a $130 price target and said the HR and payroll services provider is "well positioned" to grow revenues in a range of labor market environments driven by strong demand for HR outsourcing solutions.
"Itâs a high-quality compounder with a 5-year EPS CAGR of 11%, a clean balance sheet, high ROE of 48%, and shareholder-friendly capital allocation (3% dividend yield)," said Ashish Sabadra and Patrick Jackson from RBC.
Paychex not only has a higher revenue per client, on account of cross-selling its HR Solution, Retirement, and Time and Attendance solutions but also has a strong revenue retention driven by its focus on retaining and increasing share of wallets with high-value customer segments and a target of revenue retention in the high-80% range.
Pointing to potential headwinds, RBC noted that the weaker-than-expected employment trends which is disproportionately impacting small and medium-sized businesses, hiring rates, and new business formations may slow Paychex's growth.
Paychex, which has risen 4.84% since the start of the year, held a Buy call from SA Analysts but is rated Hold by Wall Street and Quant, on scores of 3.50, 3.05, and 3.29, respectively. 

More on Paychex

Seeking Alphaâs Quant Rating on Paychex
Historical earnings data for Paychex
Dividend scorecard for Paychex
Financial information for Paychex
Paychex: Opportunities With This Market Leading Tech Business
Paychex: Hold This Innovative Payroll Leader With Positive Net Income Growth

Paychex, Inc. (PAYX) Q4 2023 Earnings Call Transcript
Paychex: Strong Earnings Continue
Paychex Non-GAAP EPS of $0.97 in-line, revenue of $1.23B beats by $10M