Shares of Paychex (PAYX -1.38%) fell as much as 7.4% on Tuesday morning but were down about 4% as of 11 a.m. ET after the payroll, benefits, and human-resources manager reported fiscal first-quarter results. The stock's slide looks to be tied to revenue merely matching the Street consensus and to a guidance update that, while constructive on earnings, kept the revenue outlook steady.
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Earnings, guidance, and what may have spooked investors
Total revenue rose 17% year over year to about $1.54 billion, roughly in line with the Wall Street consensus. Adjusted earnings per share (EPS) came in at $1.22, slightly better than the consensus forecast for the key profitability metric.
Management nudged its outlook for fiscal 2026 adjusted EPS growth higher, to a range of 9% to 11%, up from 8.5% to 10.5% but opted to maintain its revenue growth range of 16.5% to 18.5%. That mix -- EPS a touch better but no upgrade to the top-line view -- may be one of the key reasons for the sell-off.
And the company's operating margin under generally accepted accounting principles contracted, but this was due to the inclusion of acquisition-related costs tied to Paycor.
A fair valuation
Even after the drop and the latest earnings are taken into account, Paychex trades around the mid-20s on a trailing price-to-earnings multiple. That isn't expensive for a durable, cash-generative payroll and HR platform. But it isn't necessarily cheap, either, especially considering concerns about a stagnant economy.
Structurally, the business remains attractive, with sticky clients, recurring revenue, and pricing power tied to compliance complexity. That said, with shares not obviously cheap and guidance signaling steady rather than accelerating sales, it makes sense to tread carefully given the stock's valuation today.
Overall, though, Paychex is a quality franchise, with a fair-ish multiple. And shareholders can benefit from a nice dividend yield, which is currently about 3.4%.
