Paychex (NASDAQ:PAYX) reports fiscal 2009 first-quarter earnings Wednesday afternoon. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

  • Buy, sell, or waffle? Seventeen analysts follow Paychex, giving it seven buy ratings, nine holds, and a sell.
  • Revenues. On average, they're looking for 7% revenue growth, to $540.4 million.
  • Earnings. Profits are predicted to be up a penny at $0.41 per share.

What management says:
It's looking to be a rough year for Paychex. Whatever the company reports for Q1 results, more important by far will be whether management manages to raise guidance from the disappointing numbers promised last quarter: Total revenues are expected to grow a respectable, if not terrific, 8%. Management puts a brave face on things, arguing that: "Growth in operating income, net of certain items, is expected to approximate 13% for fiscal 2009." [Emphasis added.] But between higher taxes and those "items," we're told to expect net profit growth of less than 5%.

What management does:
Don't judge Paychex too harshly, though. It can't be easy to improve on what the company's already accomplishing. Operating margins last year improved to pass the 40% mark -- an embarrassment of riches that really should embarrass less-profitable rivals ADP (NYSE:ADP), Administaff (NYSE:ASF), Intuit (NASDAQ:INTU), and Hewitt Associates (NYSE:HEW).

Margins

2/07

5/07

8/07

11/07

2/08

5/08

Gross

67.2%

67.4%

67.6%

67.9%

68.0%

68.0%

Operating

38.5%

37.2%

37.5%

37.9%

38.8%

40.1%

Net

28.1%

27.3%

27.5%

27.5%

27.6%

27.9%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Reviewing fiscal 2008 earnings three months ago, I left one piece of the story unsaid, because Paychex didn't mention it. We had to wait for the company's 10-K statement to arrive to learn this, but we finally know how much cash the company generated last year: $642.4 million. For the record, that's 16% more cash than the company generated in fiscal 2007, and 12% more than it reported as net income under GAAP.

Unfortunately, this still leaves the stock selling for more than 18 times its free cash flow, which seems a bit rich relative to the 14% long-term growth that analysts project for Paychex. On the other hand, if management can produce a bit of raised guidance on Wednesday, that would go a long way to closing that gap.

For more on Paychex, read:

Fool contributor Rich Smith does not own shares of any company named above. Paychex is an Income Investor recommendation. The Motley Fool has a disclosure policy.