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Paychex, Inc. (PAYX), Automatic Data Processing (ADP), Intuit Inc. (INTU): Growth And Expectations

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Paychex, Inc. (NASDAQ:PAYX) offers payroll, human resource, and outsourcing services for small to medium-sized businesses. The company’s goal of driving growth in clients, revenue, and profits via industry-leading technology and outstanding service is working. But that doesn’t mean it’s the best investment in its peer group.

Growth and expectations

Paychex, Inc. (NASDAQ:PAYX) aims for product portfolio expansion and acquisitions for growth. For instance, it recently launched mobile apps for smartphones, and added access to flexible spending accounts, as well as health and benefits information.

Paychex, Inc.

Paychex is also expanding beyond the United States and Germany, and is now moving into Brazil after forming a joint venture with Semco Partners in order to provide HR services to small businesses. This might not be a major move in regards to geographical expansion, but it may be a sign of things to come. Paychex sees economic growth and opportunity in Latin America, and it’s likely to capitalize on that trend going forward. With no long-term debt whatsoever and capital preservation a focus, Paychex, Inc. (NASDAQ:PAYX) is well-managed in a fiscal sense and can afford such growth risks.

Looking back at FY 2013 over 2012, revenue growth is apparent. Payroll Service revenue (payroll processing, payroll tax administration services, regulatory compliance services) improved 2% to $1.5 billion. Human Resource Services revenue (administrative services, professional employer or organizational services, customer support for employee-related topics) jumped 10% to $746 million. Total revenue increased 4% to $2.3 billion.

Looking ahead to FY2014, Paychex, Inc. (NASDAQ:PAYX) expects revenue growth of 3%-4% in Payroll Services, 9%-10% in Human Resource Services, and 5%-6% in Total Services.

Client base totals over the past three fiscal years indicate a positive trend:

  • 2011: 564,000
  • 2012: 567,000
  • 2013: 570,000

Net income also improved by 4% to $569 million, and diluted EPS increased 3% to $1.56. Paychex expects net income to grow by 8% to 9% for FY2014.

All of the above is impressive, and considering the company’s strong historical track record, future goals look to be attainable barring a complete economic collapse. In addition to the growth vehicles covered above, Paychex, Inc. (NASDAQ:PAYX) is well positioned for the SaaS (software-as-a-service) boom, as it offers human resource management, employee benefits management, time and attendance systems, online expense reporting, and more.

Paychex also launched a report center and report writer (on-demand reporting needs and data extract templates) and a new BuildMyBiz.com (small business and entrepreneur resources). Those looking for health care reform information can also visit Paychexinsurance.com.

Important notes:

  • Thanks to advanced technologies and high customer satisfaction, Paychex has managed to retain 81% of its Payroll Services clients.
  • 84% of net income is paid to shareholders via dividends

At this point, it might seem as though considering peers of Payche for investment would be a waste of time, but you never want to leave any stone unturned.

Paychex vs. peers

As indicated above, Paychex, Inc. (NASDAQ:PAYX) has seen steady growth, and expectations are solid going forward. However, other companies in the space also have high expectations. For instance, Automatic Data Processing (NASDAQ:ADP) expects revenue growth of 7% and EPS growth of 8%-10% in FY2014. This human capital management solutions company also holds the #65 spot on Forbes 2013 “World’s Most Innovative Companies” list. Paychex didn’t management to crack that list.

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