Paychex Acquires HR Services Ahead Of Its Annual Earnings

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Paychex

Paychex (NYSE:PAYX) recently announced the acquisition of Ohio-based HR Services, a provider of human resources solutions and the award-winning myStaffingPro, a Software-as-a-Service (SaaS) applicant tracking software. The news hit the headlines just a week before the company reports its annual earnings for fiscal 2013 (ending May 31) on June 26. [1] myStaffingPro is primarily used by small and medium businesses which are also the main focus areas of Paychex.

HR Services currently serves more than 15,000 users across 550 customers. [2] This acquisition will help Paychex expand its market share and increase its user base, which currently stands at about 615,000, by about 2.5%. For the calendar year 2013, we estimate Paychex to grow its number of HR outsourcing clients by about 8.5%.

In this analysis we also provide a preview of the company’s upcoming annual results.

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See our complete analysis of Paychex Here

Payroll Processing Division To Post Moderate Growth

Payroll processing is Paychex’s most important division contributing about two-thirds to its intrinsic value. This division accounted for almost 70% of total revenues in the first nine months of the fiscal year and grew by about 1% year-on-year.

For the full fiscal year, we expect this division to report 2% growth supported by growth in the client base and higher revenue per payroll processed. The acquisition of ExpenseWire, the expense management business of Rearden Commerce, in December 2012 will also increase the number of clients that Paychex serves. [3]

HR Outsourcing And Other Services To Drive Revenues Significantly

The HR Outsourcing division has historically shown strong growth as a value-added service to the company’s existing payroll processing clients. During the first nine months of fiscal 2013, the HR services division’s revenues grew by 10% to $553.3 million supported by an increase in the number of clients and higher client employees’ fund. [4]

We expect HR Services’ revenues to grow at about 10% for the entire fiscal year supported by growth in the number of clients due to acquisitions like ExpenseWire and partly moderated by lower interest revenue on the clients’ funds. The average interest rate on the clients’ funds for the entire year will be about 1%, resulting in lower total interest revenue. [4]

We will update our $32 price estimate for Paychex once the company reports its fiscal 2013 earnings.

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Notes:
  1. Paychex Announces Acquisition of myStaffingPro, June 2012 []
  2. Company Website []
  3. Leading software-as-a-service (SaaS) expense management solution joins Paychex One-Source Solutions product offering, Paychex Newsroom, Dec 2012 []
  4. SEC Filings [] []