Paychex (PAYX) Q3 Earnings Report Preview: What To Look For

Petr Huřťák /
2023/03/28 6:51 am EDT

Payroll and human resources software provider, Paychex (NASDAQ:PAYX) will be reporting results tomorrow before market open. Here's what you need to know.

Last quarter Paychex reported revenues of $1.19 billion, up 7.38% year on year, beating analyst revenue expectations by 1.22%. It was a weaker quarter for the company, with slow revenue growth and a decline in gross margin.

Is Paychex buy or sell heading into the earnings? Read our full analysis here, it's free.

This quarter analysts are expecting Paychex's revenue to grow 5.69% year on year to $1.35 billion, slowing down from the 14.8% year-over-year increase in revenue the company had recorded in the same quarter last year. Adjusted earnings are expected to come in at $1.24 per share.

Paychex Total Revenue

Majority of analysts covering the company have reconfirmed their estimates over the last thirty days, suggesting they are expecting the business to stay the course heading into the earnings. The company has a history of exceeding Wall St's expectations, beating revenue estimates every single time over the past two years on average by 3.31%.

Looking at Paychex peers in the finance and HR software segment, some of them have already reported Q2 earnings results, giving us a hint of what we can expect. Paylocity delivered top-line growth of 39.2% year on year, beating analyst estimates by 5.13% and Bill.com reported revenues up 66.1% year on year, exceeding estimates by 6.99%. Paylocity traded flat on the results, Bill.com was down 19.8%. Read our full analysis of Paylocity's results here and Bill.com's results here.

The software segment has been facing declining investor sentiment following the fears around raising interest rates, with the stocks down on average 2.17% over the last month. Paychex is down 1.1% during the same time, and is heading into the earnings with analyst price target of $121.55, compared to share price of $109.77.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.