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Paychex Inc. Stock Buy Recommendation Reiterated (PAYX)

NEW YORK ( TheStreet) -- Paychex (Nasdaq: PAYX) has been reiterated by TheStreet Ratings as a buy with a ratings score of A. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 13.4%. Since the same quarter one year prior, revenues slightly increased by 6.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the IT Services industry average. The net income increased by 0.2% when compared to the same quarter one year prior, going from $123.30 million to $123.50 million.
  • The gross profit margin for PAYCHEX INC is currently very high, coming in at 75.09%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 21.10% is above that of the industry average.
  • PAYCHEX INC reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, PAYCHEX INC increased its bottom line by earning $1.57 versus $1.51 in the prior year. This year, the market expects an improvement in earnings ($1.69 versus $1.57).
  • PAYX has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.16 is very weak and demonstrates a lack of ability to pay short-term obligations.

Paychex, Inc., together with its subsidiaries, provides payroll, human resource, and benefits outsourcing solutions for small to medium-sized businesses in the United States and Germany. Paychex has a market cap of $13.5 billion and is part of the services sector and diversified services industry. Shares are up 19.5% year to date as of the close of trading on Friday.

You can view the full Paychex Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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