Paychex (NASDAQ:PAYX) competes primarily with ADP (NASDAQ:ADP) in the payroll processing market and is dependent on the success of the small businesses that make up the majority of its clients. We estimate that the payroll processing business constitutes nearly 70% of the $29 Trefis price estimate for Paychex’s stock.
We estimate that Paychex had about 570,000 clients in 2008 and that this figure has since declined to slightly more than 550,000 due to the recessionary environment which put some of Paychex’s clients out of business.
Unlike its competitor ADP, Paychex is much more dependent on small businesses (<50 employees). Small businesses have a high risk of bankruptcy which makes Paychex vulnerable to economic cycles.
We estimate that Paychex’s client base will recover and grow over our forecast period as the broader economy recovers. However, you can modify our forecast for the Number of Paychex Payroll Clients to see how the company’s stock would be impacted if growth were slower than we forecast.
For additional analysis and forecasts, here is our complete model for Paychex’s stock.
