TD Cowen holds Paychex stock rating, affirms $147 target

On Thursday, TD Cowen maintained its Hold rating on Paychex (NASDAQ:PAYX) shares, with a steady price target of $147.00. Currently trading at $150.57, InvestingPro analysis indicates the stock is slightly overvalued based on its proprietary Fair Value model. The firm’s stance comes in light of Paychex’s performance amidst economic uncertainties and the integration of PYCR, a recently acquired company expected to contribute to Paychex’s financial results by fiscal year 2026.

The analyst from TD Cowen highlighted that despite a downward revision in the Professional Employer Organization (PEO) and insurance services guidance, Paychex has successfully managed factors within its control. The company’s adept handling of controllable elements has led to outcomes that are more favorable than initially anticipated, especially considering the broader macroeconomic challenges. InvestingPro data reveals impressive gross profit margins of 71.8% and a strong financial health score, with 14 additional ProTips available to subscribers.

Paychex’s execution has been commendable, particularly in cost management, which remained strong even after accounting for certain benefits from lower PEO passthrough costs. The analyst noted that Paychex’s stock has remained resilient year-to-date and is trading at premium valuation levels, with a price-to-earnings (P/E) ratio of 27.5 times the calendar year 2026 estimates.

The report also addressed the complexity of forecasting growth for fiscal year 2026, given the current economic environment and Paychex’s exit rate at the end of the fourth quarter. While PYCR’s integration offers some optimism, the expected organic growth rate of approximately 5.5% year-over-year faces higher macro uncertainty.

In conclusion, TD Cowen’s affirmation of the $147 price target is based on a 27.0 times multiple of the calendar year 2026 estimated earnings. The firm acknowledges Paychex’s strong operational performance and the credit given by shareholders for this robustness, as reflected in the company’s current stock valuation. Notably, InvestingPro data shows the company has maintained dividend payments for 38 consecutive years with a 10.11% dividend growth in the last twelve months, demonstrating consistent shareholder returns. For comprehensive analysis including valuation metrics and growth prospects, investors can access the detailed Pro Research Report available on InvestingPro.

In other recent news, Paychex reported its third-quarter earnings for fiscal year 2025, with earnings per share (EPS) slightly surpassing analysts’ expectations at $1.49 compared to the forecast of $1.48. Revenue matched predictions, coming in at $1.51 billion, which marks a 5% increase from the previous year. The company’s Management Solutions segment and Client Fund Interest contributed positively, offsetting some weaknesses in the Professional Employer Organization (PEO) and Insurance services. Looking ahead, Paychex anticipates a fourth-quarter revenue increase of around 4.5%, with EPS expected to align with the previous 8% growth rate. The anticipated acquisition of Paycor (NASDAQ:PYCR), expected to close in April, is projected to drive a 10-12% revenue increase in Q4 and is expected to be accretive to adjusted EPS in fiscal 2026. Analyst firms have varied in their outlook, with RBC maintaining a Sector Perform rating and a $148 price target, while Stifel and Citi raised their price targets to $156 and $158, respectively. Paychex’s ongoing investments in AI and technology-driven solutions are also noted as factors contributing to its operational efficiency and future growth prospects.

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