CBIZ (CBZ)

Financial services provider CBIZ (NYSE:CBZ) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 69.5% year on year to $838 million. The company’s full-year revenue guidance of $2.88 billion at the midpoint came in 1.6% below analysts’ estimates. Its non-GAAP profit of $2.29 per share was 8.7% above analysts’ consensus estimates.

Company Overview

With over 120 offices across 33 states and a team of more than 6,700 professionals, CBIZ (NYSE:CBZ) provides accounting, tax, benefits, insurance brokerage, and advisory services to help small and mid-sized businesses manage their finances and operations.

The sector stands to benefit from ongoing digital transformation, increasing corporate demand for cost efficiencies, and the growing complexity of regulatory and cybersecurity landscapes. For those that invest wisely, AI and automation capabilities could emerge as competitive advantages, enhancing process efficiencies for the companies themselves as well as their clients. On the flip side, AI could be a headwind as well as the technology could lower the barrier to entry in the space and give rise to more self-service solutions. Additional challenges in the years ahead could include wage inflation for highly skilled consultants and potential regulatory scrutiny on outsourcing practices—especially in industries like finance and healthcare where who has access to certain data matters greatly.

CBIZ competes with other professional services firms including Paychex (NASDAQ:PAYX), ADP (NASDAQ:ADP), Willis Towers Watson (NASDAQ:WTW), and Marsh & McLennan (NYSE:MMC), as well as regional accounting and consulting firms across the country.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $2.16 billion in revenue over the past 12 months, CBIZ is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, CBIZ’s sales grew at an incredible 22% compounded annual growth rate over the last five years. This shows it had high demand, a useful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. CBIZ’s annualized revenue growth of 20.9% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, CBIZ achieved a magnificent 69.5% year-on-year revenue growth rate, but its $838 million of revenue fell short of Wall Street’s lofty estimates.

We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates.

CBIZ has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 10.8%, higher than the broader business services sector.

Analyzing the trend in its profitability, CBIZ’s operating margin rose by 1.5 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, CBIZ generated an operating profit margin of 23.9%, up 1.8 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

CBIZ’s astounding 22.2% annual EPS growth over the last five years aligns with its revenue performance. This tells us its incremental sales were profitable.

In Q1, CBIZ reported EPS at $2.29, up from $1.54 in the same quarter last year. This print beat analysts’ estimates by 8.7%. Over the next 12 months, Wall Street expects CBIZ’s full-year EPS of $3.43 to grow 11.4%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

CBIZ has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 7.3% over the last five years, better than the broader business services sector.

Taking a step back, we can see that CBIZ’s margin dropped by 10.2 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

CBIZ burned through $93.23 million of cash in Q1, equivalent to a negative 11.1% margin. The company’s cash burn increased from $68.84 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

CBIZ historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 10%, somewhat low compared to the best business services companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, CBIZ’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

CBIZ’s $1.53 billion of debt exceeds the $8.85 million of cash on its balance sheet. Furthermore, its 6× net-debt-to-EBITDA ratio (based on its EBITDA of $262.7 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. CBIZ could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope CBIZ can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We enjoyed seeing CBIZ beat analysts’ EPS expectations this quarter. On the other hand, its revenue missed significantly and its full-year revenue guidance fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 3.1% to $74.82 immediately after reporting.

Updated: May 16, 2025 at 11:42 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in CBIZ.

CBIZ is a pretty good company if you ignore its balance sheet. First of all, the company’s revenue growth was exceptional over the last five years. And while its cash profitability fell over the last five years, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders. Additionally, CBIZ’s projected EPS for the next year implies the company will continue generating shareholder value.

CBIZ’s P/E ratio based on the next 12 months is 19.4x. Despite its notable business characteristics, we’d hold off for now because its balance sheet concerns us. We think a potential buyer of the stock should wait until the company generates sufficient cash flows or raises money.

Wall Street analysts have a consensus one-year price target of $95 on the company (compared to the current share price of $74.13).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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