Paychex (PAYX) is a payroll and HR outsourcing firm that services more than 500,000 small and medium business clients worldwide. While the company has historically thrived during more robust economic times (with low unemployment and higher interest rates), Paychex has proven to Wall Street that it's more than capable of delivering strong performance in this environment.
As a jobs recovery play, Paychex is the best name out there.Paychex has traditionally been a payroll company, providing services for small and medium-sized businesses that wanted to simplify the process of getting employees paid and taxes sorted. Because payroll revenue is driven by clients more than employment levels, the impact of the recession on Paychex's revenue has been less severe than most expectations. At the same time, the company has been growing its HR outsourcing business, upselling everything from 401(k) record-keeping to workers' compensation administration to its existing customer Rolodex. The strategy has worked well; while margins have slipped by a few points over the years, total revenue eclipsed prerecession levels this past year. Paychex's float income (the interest income it earns by holding clients' cash until employees withdraw it) has been negatively impacted by record-low interest rates of the last few years. An inevitable return to a higher-rate environment down the road should be a boon to this source of "free money" and consequently to net margins. Paychex is also one of the top-yielding diversified services stocks.
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