Insiders Have Skin In Paychex, Inc
Yes, the insiders have been selling some shares of Paychex, Inc (NASDAQ: PAYX) this year but it is nothing for investors to be worried about. If anything, insiders should have waited longer to do their selling, and, ultimately, their activity speaks volumes. While there were 22 sales made by insiders over the past 12 months the sales peaked in the 3rd quarter of 2021 and have since subsided to near nil. More importantly, the selling is worth only 0.16% of the shares outstanding and the insiders still own a considerable amount of shares. With insiders holding about 11.5% of the company we see nothing wrong with a little profit-taking.
The detail investors should be more interested in is the institutional activity. Institutional activity has been vigorous this year with net-activity positive in the amount of $1.789 billion. That’s worth about 4.0% of the market cap and we see that trend continuing over the next year as well. While institutional holdings are large and account for 70% of the shares the sell-side analysts have been lagging the market all year.
The consensus of 13 sell-side analysts is $109 per share or about 16% below the current price action. The consensus target hasn’t budged in the last 30 days and only inched higher in the last 90 so we are expecting to see some analyst activity very soon. The key takeaway is that the consensus rating is only a weak Hold when it should be more bullish. In that light, not only are we expecting to see some analyst activity but for it to include rating upgrades and price target increases as well.
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Paychex Leverages Robust Market
Employment services company Paychex, Inc posted $1.09 billion in net revenue for the fiscal Q2 period and is guiding the market higher. The revenue is 10.8% from last year and a similar among versus two years ago as the company leverages market strength. Paychex reports not only is it gaining new clients but retention remains high and the number of employees per client is growing. This should, in our view, continue to drive revenue and earnings gains through the end of the fiscal year at least. On a segment basis, total services revenue rose 13% with Management Solutions up 14% and PEO up a smaller 11.0%.
Moving down to the earnings, the company reported an improvement in the margin as well. The operating income increased by 24% over last year to drive a substantial improvement in earnings and cash flow. The $0.91 in GAAP and adjusted EPS is up from last year’s $0.73 and beat the consensus estimate by $0.11.
Looking forward, the company is expecting the strength to continue and guided the market higher. Execs are now expecting FY22 revenue growth in the range of 10% to 11% versus the previous +8% and the consensus of 8.34%. That will include about 100 basis points of margin improvement as well and drive EPS growth into the double-digits. EPS is expected in the range of up 18% to 20% compared to the consensus 13%.
The Technical Outlook: Paychex Rockets To New High
The Q2 results and guidance sent shares of Paychex, Inc up more than 5.0% to set a new all-time high. The move is in line with the underlying trend and is accompanied by bullish indicators. Both MACD and stochastic are firing bullish signals as well so we are expecting the rally to continue. Now that a new high has been set, our next target for this stock is in the $145 to $150 range.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Paychex (PAYX) | $141.39 | +1.5% | 2.77% | 30.15 | Reduce | $132.23 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
