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On Tuesday, KeyBanc Capital Markets adjusted its outlook on Paylocity Holding (NASDAQ:PCTY) shares, reducing the price target from $250.00 to $220.00, while still maintaining an Overweight rating on the stock. The adjustment reflects a recalibration of valuation metrics in the face of a broader pull-back in software sector valuations. Currently trading at $179.52, InvestingPro analysis suggests the stock is slightly undervalued, with 13 key investment tips available for subscribers.
Jason Celino of KeyBanc underscored Paylocity’s status as a high-quality, resilient company that has consistently demonstrated strong execution and increasing profitability. The company maintains impressive gross profit margins of 68.6% and has shown solid revenue growth of 16% over the last twelve months. Despite the price target reduction, KeyBanc’s Overweight rating remains unchanged, signaling confidence in the company’s ongoing performance.
The revision to a $220.00 price target is based on a 7x multiple of the company’s expected fiscal year 2026 enterprise value to sales ratio, or alternatively, a 31x multiple of its expected fiscal year 2026 enterprise value to free cash flow. This change comes as a response to recent shifts in the market’s valuation of software companies. InvestingPro data shows the company currently trades at an EV/EBITDA multiple of 32x, with detailed valuation metrics available in the Pro Research Report.
KeyBanc anticipates that Paylocity may outperform its conservative guidance for the remainder of fiscal year 2025, particularly in terms of workforce levels. This could lead to upward revisions in both the company’s and consensus estimates for third-quarter revenue and EBITDA. Furthermore, Paylocity may adjust its full-year revenue and EBITDA guidance ranges to reflect any outperformance.
Although Paylocity does not typically issue guidance for out-years, any future guidance for fiscal year 2026 is expected to be conservative, according to KeyBanc’s analysis. This approach aligns with the company’s historical tendency to adopt a prudent stance in its forward-looking statements.
In other recent news, Paylocity Holding Corporation reported mixed second-quarter results, with earnings per share (EPS) falling short of forecasts at $0.66, compared to the anticipated $1.42. However, the company’s revenue exceeded expectations, reaching $377 million, surpassing the forecasted $367.01 million. Analysts from JMP maintained a Market Outperform rating and a $270 price target for Paylocity, highlighting the company’s innovative strides, including the launch of an AI Assistant and the strategic acquisition of Airbase. This acquisition is expected to enhance Paylocity’s offerings by integrating human capital management and spend-management solutions. TD Cowen adjusted its price target for Paylocity to $225, maintaining a Buy rating, as analysts anticipate the company will surpass future earnings estimates. The firm noted Paylocity’s potential to raise future guidance based on its consistent track record and attractive valuation. Additionally, Paylocity’s leadership team was praised for effective management, with the company maintaining strong financial forecasts and cash positions. These developments underscore Paylocity’s ongoing growth and strategic positioning in the market.
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