Morgan Stanley maintains Paychex stock with $150 target

On Tuesday, Morgan Stanley (NYSE:MS) reiterated an Equalweight rating on Paychex (NASDAQ:PAYX) shares, maintaining a price target of $150.00. The firm’s analysts updated their financial model to include the effects of acquiring Paycor (NASDAQ:PYCR), leading to an approximate 5% and 3% decrease in the forecasted adjusted diluted earnings per share (EPS) for fiscal years 2026 and 2027, respectively. Currently trading at $156.97, near its 52-week high of $161.24, Paychex commands a market capitalization of $56.54 billion and trades at a P/E ratio of 32.7. According to InvestingPro analysis, the stock appears overvalued relative to its Fair Value estimates.

Despite the downward adjustment in EPS estimates, Morgan Stanley increased the price target to $150 from a previous target, attributing the adjustment to a higher earnings multiple of 27 times, up from 25 times. This change reflects the firm’s confidence in the sustained strength of the demand and employment landscape, as well as the potential for Paycor to expand Paychex’s total addressable market (TAM) and enhance cross-selling opportunities. The company maintains impressive gross profit margins of 72%, with strong revenue of $5.44 billion in the last twelve months.

The analysts noted that the integration of Paycor is expected to contribute positively to Paychex’s business by broadening its service offerings and reaching new customer segments. The strategic acquisition is seen as a move that could bolster Paychex’s position in the market by tapping into Paycor’s existing customer base and technology solutions. InvestingPro data reveals the company’s solid financial health, with more cash than debt on its balance sheet and a strong dividend history spanning 38 consecutive years. Investors can access detailed analysis and 12+ additional ProTips through InvestingPro’s comprehensive research report.

Morgan Stanley’s maintained rating and updated price target come as Paychex continues to navigate the competitive payroll and human resources services industry. The company’s efforts to expand its TAM through acquisitions like Paycor are part of a broader strategy to capture more market share and drive growth.

In conclusion, Morgan Stanley’s analysis suggests that Paychex’s current stock valuation is in line with the firm’s expectations, taking into account the potential benefits and challenges of the Paycor acquisition. The updated model and price target reflect a balanced view of the company’s prospects in the context of the broader industry dynamics.

In other recent news, Paychex has completed its acquisition of Paycor HCM , Inc. for approximately $4.1 billion, aiming to enhance its AI-enabled technology and service capabilities. The merger is expected to unlock over $80 million in annual cost synergies by fiscal 2026, with additional revenue synergies anticipated. In another strategic move, Paychex issued $4.2 billion in senior notes with varying maturities and interest rates to secure long-term financing. The funds may be used for refinancing existing debt, funding acquisitions, or supporting operational needs.

Additionally, Paychex announced a 10% increase in its quarterly cash dividend, raising it to $1.08 per share. Meanwhile, RBC Capital maintained its Sector Perform rating for Paychex, with a price target of $165, noting the company’s fiscal year 2026 guidance aligns with expectations. The analysts highlighted stable employment levels and small business sentiment, while monitoring potential impacts from tariffs. Furthermore, Paychex founder B. Thomas Golisano will retire from the board in July 2025, marking the end of an era for the company. Current Chairman Martin Mucci acknowledged Golisano’s significant contributions to Paychex’s success.

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