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Paychex – Stock Analysis

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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 19th and provided an update on the Oasis Outsourcing Acquisition which was announced on November 26th.
  • 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 19th 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.

PAYX - Q2 Investment Portfolio Results

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.

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Note: I sincerely appreciate the time you took to read this article. Please send any feedback, corrections, or questions to charles@financialfreedomisajourney.com.

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.

By |December 20th, 2018|General Investing|Comments Off on Paychex – Stock Analysis

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