Stifel raises Paychex stock price target to $156 from $141

On Thursday, Stifel analysts adjusted their outlook on Paychex (NASDAQ:PAYX), increasing the price target from $141.00 to $156.00, while maintaining a Hold rating on the stock. Currently trading at $150.19, InvestingPro analysis suggests the stock is slightly overvalued based on its Fair Value calculations. The revision follows Paychex’s third fiscal quarter results, which revealed a 6% increase in revenue, excluding the Employee Retention Tax Credit (ERTC), and an 8% rise in earnings per share (EPS). The company maintains impressive gross profit margins of 71.8% and has demonstrated strong financial health with an overall "GOOD" rating from InvestingPro’s comprehensive assessment. The enhancement in EPS was attributed to a mere 1% uptick in operating expenses, which in turn bolstered the year-over-year margin by 180 basis points.

Despite the positive performance in the third quarter, Paychex has provided a fourth-quarter revenue guidance that is somewhat conservative, hovering around a 4.5% increase, with EPS expected to align with the previous 8% growth rate. The lower revenue forecast is primarily due to slower growth in the Professional Employer Organization (PEO) segment, especially concerning the at-risk book in Florida, an issue that was flagged in the last quarter. Nonetheless, higher margins resulting from cost management measures and pricing adjustments are anticipated to soften the impact on EPS.

Paychex’s macroeconomic observations remain consistent with reported trends, indicating a deceleration in small and medium-sized business (SMB) hiring, with particular softness observed in California, a region affected by recent wildfires. The company’s fourth-quarter projections exclude the impact of the Oasis Outsourcing (PYCR) acquisition, which is set to close in April, and is expected to have a neutral effect on EPS.

Looking further ahead, Paychex has updated its forecast for expense synergies following the PYCR acquisition, now anticipating more than $80 million by fiscal year 2026, an increase from the previous estimate of approximately $80 million. The earnings impact from the acquisition is also predicted to be modestly accretive, a slight improvement from the previously expected neutral stance. Paychex estimates that PYCR will contribute roughly 150 basis points to its organic growth rate before revenue synergies and add more than $0.08 to annual EPS growth starting in fiscal year 2027.

Management has indicated that the consensus revenue and margin assumptions for fiscal year 2026, which project a 4.5% revenue increase and a 30 basis point margin expansion, are reasonable for the core business, excluding the effects of the PYCR acquisition. Paychex is positioned as a solid defensive growth stock, expected to maintain a stable mid-to-high single-digit EPS growth rate in most market conditions, particularly after the integration of PYCR. However, the stock is currently trading at a 73% premium compared to the equal-weight S&P 500 index, which is above its five-year mid-60s average.

In other recent news, Paychex Inc . reported its third-quarter earnings for fiscal year 2025, slightly surpassing analysts’ expectations with an earnings per share (EPS) of $1.49 compared to the forecast of $1.48. The company’s revenue matched predictions at $1.51 billion, reflecting a 5% increase from the previous year. Citi analysts responded to these results by raising their price target for Paychex shares from $145 to $158, maintaining a Neutral rating. This adjustment follows Paychex’s strong client retention and positive bookings growth, with lower-than-expected small and medium-sized business out-of-business losses. The company’s upcoming acquisition of Paycor (NASDAQ:PYCR) is anticipated to drive a 10-12% revenue increase in the fourth quarter and is expected to be accretive to adjusted EPS in fiscal 2026. Citi’s detailed pro forma model suggests a 7%-8% accretion, leading to a forecasted EPS of $5.65 for fiscal year 2026. Analysts from Citi also expect modest revenue synergies beginning in fiscal year 2026 and increasing to 6%-7% by fiscal year 2030. These developments highlight Paychex’s strategic direction and the anticipated benefits from its acquisition activities.

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