TD Cowen cuts Paylocity stock price target to $225, maintains Buy

On Thursday, TD Cowen adjusted its outlook on Paylocity Holding (NASDAQ:PCTY) shares, reducing the price target to $225 from the previous $229 while sustaining a Buy rating on the stock. The $10.3 billion market cap company, currently trading at $184.05, has seen its shares decline 6% year-to-date, underperforming compared to its peer, Paycom Software (NYSE:PAYC). According to InvestingPro analysis, Paylocity maintains a "GREAT" financial health score, suggesting strong fundamental performance despite recent stock weakness.

Analysts at TD Cowen expressed optimism for Paylocity's first-quarter performance, expecting the company to surpass estimates and raise future guidance. This optimism appears well-founded, as the company has demonstrated impressive revenue growth of 16% in the last twelve months, along with robust gross profit margins of 68.6%. This anticipated outcome is based on what they consider achievable guidance, increased visibility for the year, and the company's consistent track record of execution. A strong quarterly performance following recent share weakness could lead to a favorable investor response, the firm noted.

The valuation of Paylocity is seen as attractive by TD Cowen, with its shares trading at 27 times the calendar year 2026 estimated enterprise value to free cash flow (EV/FCF). This valuation is deemed appealing due to Paylocity's leading combination of growth excluding float and free cash flow margins within its comparable set, which is expected to continue in the medium term. InvestingPro analysis indicates that the stock is currently undervalued, though it trades at relatively high multiples across various metrics. Subscribers can access 12 additional ProTips and comprehensive valuation analysis through the platform's detailed research reports.

TD Cowen's revised price target of $225 is based on a 32 times multiple of the projected enterprise value to free cash flow for the calendar year 2026. Despite the slight reduction in the price target, the firm's Buy rating indicates a continued positive outlook on Paylocity's stock.

The lowered price target reflects a nuanced view of the company's financial projections while still recognizing the potential for Paylocity's shares to perform well in the market. Paylocity, known for providing cloud-based payroll and human capital management software solutions, has yet to respond publicly to the revised price target.

In other recent news, Paylocity Holding Corporation reported its second-quarter earnings, showcasing a mixed performance. The company exceeded revenue expectations with a total of $377 million, a 16% year-over-year increase, surpassing the anticipated $367.01 million. However, Paylocity's earnings per share (EPS) fell short, coming in at $0.66 compared to the forecasted $1.42. JMP analyst Devin Ryan maintained a Market Outperform rating with a $270 price target, highlighting Paylocity's innovation and recent acquisition of Airbase, which expands its offerings in human capital management and spend management solutions. Meanwhile, TD Cowen adjusted its price target for Paylocity to $229, down from $242, while maintaining a Buy rating, citing updates in revenue forecasts and federal funds rate expectations. The firm anticipates a growth in free cash flow margins over the next few fiscal years. Despite the earnings miss, Paylocity's new product launches, including an AI Assistant Chatbot and Headcount Planning tool, demonstrate the company's commitment to innovation and product differentiation.

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