It's "check's-in-the-mail" time for payroll processing coordinator Paychex (NASDAQ:PAYX). On Wednesday, we'll learn just how much of the $0.29 in per-share profit that analysts are predicting for the company will actually arrive. For reasons I'll explain below, I suspect that investors needn't worry.
The last we heard from the company on the earnings front, back in late September, Paychex was getting off to a magnificent start in its new fiscal year. As fellow Fool W.D. Crotty observed, by reporting a 17% increase in sales over the prior year's quarter and a 31% increase in profits, the company won itself a spot in the top quintile of stock gainers for the day. Paychex blew away the consensus analyst estimates for the second time in the past four quarters. And it foresaw bright days ahead, raising its revenue guidance for the full fiscal year 2006 to a range of 13% to 15% more than it achieved in fiscal 2005. As for profits, the company predicted better news still in that regard: a 22% to 24% improvement.
If the year plays out as planned, therefore, the company expects to produce something in the neighborhood of $1.19 per share this year. So why, then, are analysts predicting it will earn $1.21 for the year? That's a full penny above even the top number Paychex told us to expect. Perhaps the analysts are just getting a bit ahead of themselves. But judging from the performance of Paychex's competitors, none of which sports a return on equity anywhere near the profit-making prowess of Paychex itself (the company has an ROE of better than 29%), I'm inclined to agree with the analysts on this one.
Consider:
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Ceridian (NYSE:CEN) reported its third-quarter numbers back in October, beating estimates and turning in a 42% increase in earnings per share.
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Administaff (NYSE:ASF) reported a week later, also beat estimates, and turned in an astounding 86% gain.
- And ADP (NYSE:ADP), the leader of this pack by market cap and industry dominance, reported a 31% increase in profits about the same time that Ceridian was announcing its own success. (This, too, was enough to beat analysts' estimates, by the way.) Speaking of ADP, it's the only one of these three competitors to have scheduled its next earnings release date. ADP reports next month, and analysts believe that it has earned $0.45 in this, its fiscal second quarter of 2006, for a 25% increase over last year.
Whatever naysayers say about the strength of the U.S. economy, the evidence coming out of each of these enablers of hiring and wage payment suggests that job growth is strong. That bodes well for each of them individually, and for Paychex as part of the group.
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Fool contributor Rich Smith has no position, short or long, in any company named above.
