Paychex (PAYX) released its Q2 and YTD 2019 results on December 19 and provided an update on its recently announced Oasis Outsourcing acquisition for $1.2B which is expected to close in Q3.

In this article I look at whether PAYX is attractively valued after having retraced ~14.55% from its 52 week high recorded in late September.

Summary

• PAYX released Q2 results on December 19^th and provided an update on the Oasis Outsourcing Acquisition which was announced on November 26^th.
• Investors may be concerned about the 80+% dividend payout ratio but management has reiterated on several occasions that the company’s positive cash flows have historically allowed it to support its business and to pay substantial dividends.

Introduction

When I last wrote about PAYX (NASDAQ: PAYX) shares were trading at $66.89 (June 27 close of business) and management was projecting ~$2.66 diluted EPS and ~$2.83 adjusted diluted EPS for FY2019. The share price subsequently rose to ~$75 toward the end of September but has since retraced to the ~$65 level.

On December 19^th PAYX released its Q2 results and revised FY2019 outlook. I now take this opportunity to revisit PAYX which is held in the FFJ Portfolio.

PAYX stands to benefit somewhat from a rising interest rate environment in that it consistently maintains several billion dollars in ‘funds held for clients’ on which it is able to generate investment income.

Source: PAYX Q2 2019 Highlights and Financial Results

More detail on the nature of these investments can be found in Note F - Funds Held for Clients and Corporate Investments found on page 54 of 82 in PAYX’s FY2018 10-K.

Naturally, there is always some interest rate ‘tipping point’ at which time further rate increases start to have a detrimental impact on PAYX’s client base and then PAYX suffers. I think we are a few hundred basis points away from this occurring.

Please click here to read the complete version of this article.

Members of the FFJ community can access reports I generate on high quality companies which add long-term shareholder value. In an effort to help you determine whether my offering is of any value to you I am pleased to offer 30 days' free access to all sections of my site. No commitments. No obligations. That's 30 days from the time you register at absolutely no cost to you!

I wish you much success on your journey to financial freedom.

Thanks for reading!

Note: I sincerely appreciate the time you took to read this article. Please send any feedback, corrections, or questions to [email protected].

Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.

Disclosure: I am long PAYX.

I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.