How Is Paychex Expected To Perform In 2016?

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Paychex

Paychex’s (NASDAQ:PAYX) revenues have grown by 8-9% over the last few years, with much of the growth coming from its HR outsourcing and services business. HR outsourcing revenues have grown at over 15% over the last few years, with the company cementing its position as the market leader for HR outsourcing for small and medium sized businesses. Comparatively, its core payroll processing business has grown at a steady 3-4%, owing to consistent 2-4% price increases over the last few years to complement the growth in its customer base. [1] We forecast Paychex’s net revenues to increase by 8% this year, with the most growth coming from HR outsourcing and services. Additionally, Paychex managed to limit the increase in expenses leading to healthier margins.

2016_1Given that Paychex’s expenses in the Payroll division and interest income are largely fixed in nature, we expect the revenue growth to translate to an improvement in margins. Consequently, Paychex’s adjusted EBITDA margin for 2016 could increase from 43.5% in 2015 to 45.5% in 2016.

2016_2

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Paychex.
Notes:
  1. Paychex Q2 2016 Earnings Call Transcript, Seeking Alpha, December 2015 []