PAYX - Embedded Expectations Analysis - 2021 11 12
Paychex, Inc. (PAYX) currently trades at a historical high and above corporate averages relative to Uniform earnings, with a 32.2x Uniform P/E (Fwd V/E').At these levels, markets are pricing in expectations for Uniform ROA to expand to record-highs, accompanied by 5% Uniform asset growth.
Meanwhile, analysts expect Uniform ROA to improve to 67% in 2023, accompanied by 1% Uniform asset growth.
If sustained going forward, these levels would imply a stock price closer to $77, representing approximately 39% equity downside for the firm.
Moreover, the firm's most recent earnings call suggests management may have concerns about their value proposition, product capabilities, and growth.
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
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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