Paychex Inc. Stock Buy Recommendation Reiterated (PAYX)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

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, solid stock price performance, growth in earnings per share, increase in net income and expanding profit margins. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

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Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 13.0%. Since the same quarter one year prior, revenues slightly increased by 4.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 25.10% over the past year, a rise that has exceeded that of the S&P 500 Index. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • PAYCHEX INC has improved earnings per share by 8.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, PAYCHEX INC increased its bottom line by earning $1.51 versus $1.42 in the prior year. This year, the market expects an improvement in earnings ($1.60 versus $1.51).
  • 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 6.7% when compared to the same quarter one year prior, going from $135.40 million to $144.50 million.
  • The gross profit margin for PAYCHEX INC is currently very high, coming in at 75.20%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 24.35% is above that of the industry average.

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 $13.9 billion and is part of the services sector and diversified services industry. The company has a P/E ratio of 24.00, above the S&P 500 P/E ratio of 18.00. Shares are up 22.8% year to date as of the close of trading on Wednesday.

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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