Paychex (PAYX) Last Update 9/12/23
Related: IBM ADP
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Potential upside & downside to trefis price

Paychex Company


  1. Management Solutions constitute 72% of the Trefis price estimate for Paychex's stock.
  2. PEO & Insurance constitutes 23% of the Trefis price estimate for Paychex's stock.


Paychex Q4 FY'23 Results

Paychex posted a stronger-than-expected set of Q4 FY'23 results. Revenue grew 7% year-over-year to $1.230 billion, while adjusted net income stood at about $0.97 per share, up from $0.81 in the year-ago quarter. Growth was driven by strength in the Management Solutions segment, which witnessed a rising client base, higher employees per client, and higher per-customer revenue.

Strong U.S. Job Market

The unemployment rate has declined from the highs of 14.8% in April 2020 to about 3.5% in September 2022, although it inched up to about 3.8% as of August 2023. This has resulted in an increase in worksite employees for Paychex, along with a stable customer retention rate. The company had a total of about 740,000 payroll clients in the U.S. as of May 2023, up from around 670,000 in 2019.

Note: Paychex's FY'23 ended on May 31, 2023.


Below are key drivers of Paychex's value that present opportunities for upside or downside to the current Trefis price estimate for Paychex:

Management Solutions

  • Management Solutions Revenue: We currently forecast that Paychex Management Solutions Revenue will rise from around $3.7 billion in FY'22 to over $5.5 billion by FY'30. However, there could be a 15% downside to the Trefis price estimate if the metric only grows to about $4.2 billion, due to competition from cheaper competitors and online payroll processing companies.

  • Paychex Management Solutions EBITDA Profit Margin:EBITDA margin for Paychex's Management Solutions business has hovered around 44% in recent years. We forecast the margin to increase gradually to 46% by the end of the Trefis forecast period. There could be a 10% upside to the Trefis price estimate if EBITDA margin continues to increase in the future, reaching around 50% by the end of our forecast period.


Paychex is a leading provider of human capital management (HCM) solutions including payroll processing, talent management, and employee benefits functions to small and medium-sized businesses. The company classifies its services across two segments, Management Solutions, and Professional Employer Organization. The Management Solutions segment provides all human capital management services including payroll processing, tax administration, HR solutions, and retirement services.

The PEO segment provides a comprehensive employment administration solution where employees working for a client are co-employed by Paychex and the client (worksite employees).


Number of Paychex Payroll Clients

The number of payroll clients is an important driver of Paychex revenues. As of May 2022, Paychex had over 730,000 Payroll clients.

Human Resources Outsourcing

In addition to Payroll Processing, Paychex offers HR Outsourcing, whereby Paychex takes over the HR operations of clients. About two million worksite employees are served through the company's HR outsourcing services.


Declining unemployment rates in the U.S.

The U.S. job market has pick up in recent years, with unemployment rates declining from levels of almost 8% in 2012 to under 4% as of May 2022. Declining unemployment rates are beneficial to Paychex since it could lead to an increase in its checks per payroll metric. This metric indicates the number of employees per client that Paychex caters to and an increase in this number will have a positive impact on Paychex's revenue.

Growing jobs in small and medium-sized businesses

Jobs in the small and medium businesses in the U.S. have grown over the last decade, driven by a recovery in the U.S. economy post the financial crisis. Paychex's core payroll services are targeted at small and medium-sized (less than 50 employees) businesses. Growth in jobs at these businesses will help drive Paychex's clients and revenues.

High small business exposure

Small businesses are the most vulnerable in economic recessions and have high bankruptcy risk. Paychex is more exposed to the risks of small businesses than its primary competitor ADP.