Human Capital Management Monthly Notes: Paychex, ADP In Focus

November 30th, 2015 by Trefis Team
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Paychex

Paychex (NASDAQ:PAYX) recently reported a continued year-over-year decline in the Paychex IHS Small Business Jobs Index (SBJI), the third consecutive month in which the pace of growth of small businesses slowed. It was also the first time since 2013 that the slowdown in job gains continued for a three-month period. [1] Both Paychex and competitor ADP (NASDAQ:ADP) had a strong fiscal Q1, with each reporting 6-8% annual increases in revenues, largely driven by human resource services. The companies released their monthly reports pertaining to small business employment and national private sector employment metrics for October earlier this month. Below we take a look at some of these reported metrics.

The stocks of ADP and Paychex rose by 11% and 20% in the last three months, respectively, as compared to the 6-7% rise in the Dow Jones Industrial Average and the Nasdaq Composite indices.

Paychex

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Paychex released the Paychex IHS Small Business Jobs Index earlier this month. The index, which analyzes changes in small business employment trends, declined by 0.49% annually in October. The national index was down by 0.10% in October and by 0.31% over the last three months. However, as job gains continue, the index is still over 100 (at 100.34) for October. This implies that job gains for small businesses came at a pace 0.34% faster than in Paychex’s base period about 10 years ago. Despite the initial dip in August, Paychex CEO Marty Mucci remained hopeful about future small business growth. [2] More recently, he said that although the rate of growth in small businesses has leveled off from previous levels, there is still steady growth in jobs. [3]

  • Trefis has a $48 price estimate for Paychex’s stock, implying a market cap of $17.2 billion. This is about 10% lower than the current market price.
  • Paychex’s stock rose by over 3% last week, and by 20% in the last three months.
  • We estimate revenues of $2.94 billion and EPS of $2.00 for fiscal 2016, compared to the Reuters’ consensus estimate of $2.04.

Click here to see our complete analysis of Paychex

ADP

ADP recently reported solid growth figures for private sector employment numbers. According to the ADP National Employment Report, private sector non-farm jobs increased by about 182,000 from September to October. [4] The total number of jobs was up by 90,000 for small businesses (49 or fewer employees), while medium businesses (50-499 employees) added about 63,000 jobs through the month. The total number of non-farm private jobs added from January through October this year stood at over 1.9 million.

ADP also announced a partnership with cloud ERP software firm Intacct this month. The partnership aims to streamline back office processes for mid-size firms by integrating Intacct’s enterprise-resource planning software with ADP Workforce Now. [5] The integrated solution could gain traction in the coming quarters, with the combined solution generally available on both Intacct Marketplace and ADP Marketplace from the first quarter of 2016.

  • Trefis currently has $77 price estimate for ADP’s stock, implying a market cap of $35.6 billion. This is about 10% lower than the current market price.
  • ADP’s stock rose by almost 2% in the last week, and by about 11% in the last three months.
  • We estimate revenues of $11.7 billion and EPS of $3.36 for fiscal 2016, compared to the Reuters’ consensus of $3.25.

Click here to see our complete analysis of ADP

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Notes:
  1. Paychex|IHS Small Business Jobs Index, Paychex Press Release, November 2015 [↩]
  2. Small business is back: Paychex CEO, Yahoo! Finance, September 2015 [↩]
  3. Paychex Small Business Index Shows Hiring Cooling Off A Bit, WXXI News, November 2015 [↩]
  4. ADP National Employment Report, ADP Press Release, November 2015 [↩]
  5. Intacct and ADP Partner to Streamline Back-office Processes for Midsized Companies, PR Newswire, November 2015 [↩]