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Investing.com - Morgan Stanley (NYSE:MS) reduced its price target on Paychex (NASDAQ:PAYX) to $148.00 from $150.00 on Wednesday, while maintaining an Equalweight rating on the payroll services provider. According to InvestingPro data, the stock currently trades at $137.94, with a P/E ratio of 28.5x, reflecting its premium valuation status.
The price target adjustment comes as Morgan Stanley incorporated the contribution from Paychex’s Paycor (NASDAQ:PYCR) acquisition into its financial projections, which resulted in higher revenue and adjusted diluted earnings per share estimates for fiscal years 2026 and 2027. The company maintains impressive gross profit margins of 72.35%, according to InvestingPro data.
Despite the improved earnings outlook, Morgan Stanley applied a lower multiple of 25 times (down from 27 times) to its fiscal 2027 adjusted diluted EPS estimate of $5.94, citing concerns about Paychex’s "highest-ever net debt position" following the acquisition. However, InvestingPro analysis indicates that the company operates with a moderate level of debt, with a Debt/Common Equity ratio of 1.22 and sufficient cash flows to cover interest payments.
The firm also expressed caution about a potential deceleration in Paychex’s core business, which factored into the decision to reduce the price target despite raising the underlying earnings estimates.
The 25 times multiple applied by Morgan Stanley sits slightly below Paychex’s five-year historical forward price-to-earnings ratio, reflecting the additional financial risks the company now faces with its increased debt load.
In other recent news, Paychex Inc . reported its fourth-quarter financial results for fiscal year 2025, which showed steady growth despite market challenges. The company achieved an adjusted diluted earnings per share of $1.19, aligning with analysts’ expectations, and revenue reached $1.43 billion. Year-over-year, Paychex’s Q4 revenue increased by 10% to $1.4 billion, driven significantly by a 12% rise in the Management Solutions segment. For the full fiscal year 2025, revenue rose by 6% to $5.6 billion. Looking ahead, Paychex anticipates fiscal 2026 revenue growth of 16.5-18.5%, with significant contributions expected from the Management Solutions segment. Despite these positive earnings, Stifel lowered its price target for Paychex to $152 from $156, citing revenue guidance that fell short of analyst expectations. The fiscal 2026 revenue guidance of 4.5-5.5% organic growth was below the anticipated 5.8%, although the earnings per share guidance exceeded forecasts. Stifel maintained a Hold rating on Paychex, noting challenges in reconciling the fourth quarter’s organic revenue growth with fiscal 2026 projections.
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