PAYX - Embedded Expectations Analysis - 2020 06 15
Paychex, Inc. (PAYX:USA) currently trades above recent averages relative to UAFRS-based (Uniform) earnings, with a 26.4x Uniform P/E. At these levels, the market has bullish expectations for the firm, and management is confident about their industry-leading margins, coronavirus headwind resiliency, and their sales teamSpecifically, management is confident that they are leading the industry in margins, that they have the highest cash generation among peers, and that other parts of their business have picked up as front-end leads declined. In addition, they are confident they can weather coronavirus-related headwinds, that a majority of their employees now work from home, and that small businesses are working to keep their business models intact. Moreover, management is confident that their sales team is finding different ways to get in touch with their clients virtually and that their PEO and insurance segment provides flexible benefits and solutions
Paychex is a provider of integrated human capital management (HCM) solutions for payroll, benefits, human resource (HR), and insurance services for small- to medium-sized businesses. The company's portfolio of HCM and employee benefit-related services include: payroll processing services; payroll tax administration services; employee payment services; regulatory compliance services (new-hire reporting and garnishment processing); HR Solutions Administrative Services Organization; retirement services administration; HR administration services, including time and attendance; other HR services and products; business services; Professional Employer Organization services; and insurance services.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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