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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.


  • 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.


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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Disclosure: I am long PAYX.

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