Paychex (PAYX) Is Compensating Investors Well Today After Posting Beat-And-Raise Report

3:08 pm Thursday, September 30th, 2021

Paychex (PAYX), a provider of a human capital management (HCM) platform for small to medium-sized businesses (SMBs), is compensating investors well today after posting an impressive beat-and-raise 1Q22 report. Looking back throughout PAYX’s history, the company has a long track record of reporting quarterly results that are very close to analysts’ estimates. EPS beats of $0.01-$0.03 were commonplace, but that has changed over the past several quarters. Now, the company is exceeding expectations by larger margins with this quarter’s $0.09/share beat representing its highest upside in over five years.

Naturally, some may wonder what has changed to cause this stronger performance. On that note, it’s important to realize that PAYX’s top-line results are also cruising past estimates by wider margins, resulting in improved operating leverage and stronger margins.

There are a few main factors that are fueling PAYX’s turbo-charged top-line.

First, favorable trends within the economy and labor market are driving healthy demand for its solutions. For instance, the digital transformation that accelerated in the wake of the pandemic has instigated sweeping changes for human resources (HR) departments, especially within SMBs. Not only were many of these businesses using outdated software to complete tasks such as payroll processing and employee benefits administration, but how companies recruited and retained talent also needed to change.

In fact, according to PAYX’s own research, recruiting is identified by HR professionals as the top challenge. Through two different options, PAYX is well-suited to help clients find talent. Specifically, the company offers a fully integrated API connection with Indeed, and a comprehensive recruiting and applicant tracking tool called Flex Hiring.

Another positive trend is the return of employees to worksites and the accompanying increase in average wages per worksite employee. This has particularly benefited PAYX’s Professional Employer Organization (PEO) and Insurance Solutions segment, which generated revenue growth of 14% in Q1. As more people return to worksites, the burdens of HR functions like payroll processing, taxes, and benefits become heavier and more complex, causing SMBs to outsource these processes to PEOs.