Paylocity holds Buy stock rating post-Airbase acquisition

On Friday, TD Cowen maintained a Buy rating and a price target of $186.00 on shares of Paylocity Holding (NASDAQ:PCTY), following the completion of Paylocity's acquisition of Airbase on October 1. The financial firm adjusted its forecasts to incorporate the effects of the acquisition, anticipating an update to Paylocity's FY25 guidance when the company reports its first-quarter results for 2025.

The updated estimates by TD Cowen indicate an expected ex float growth of 11.7%, 10.5%, and 10.9% for the fiscal years 2025, 2026, and 2027, respectively. Organic ex float growth is projected at slightly lower rates of 10.5%, 10.1%, and 10.9% for the same periods. The acquisition is expected to have a modest dilutive effect on Paylocity's adjusted EBITDA margins, which are now modeled at 34.3%, 33.2%, and 33.6% for FY25, FY26, and FY27, respectively.

Furthermore, free cash flow (FCF) margins have been adjusted downward in light of the reduced adjusted EBITDA margins and increased interest expenses related to financing the Airbase acquisition. The revised FCF margin projections stand at 19.5%, 19.2%, and 19.9% for FY25, FY26, and FY27, respectively.

TD Cowen's analysis reflects the immediate financial implications of the Airbase acquisition on Paylocity's growth and margin profiles. The firm's reiteration of the Buy rating suggests a positive outlook on Paylocity's stock performance, despite the anticipated adjustments to financial metrics due to the recent acquisition. Paylocity is expected to provide more detailed guidance on the impact of the Airbase acquisition when it releases its first-quarter results for fiscal year 2025.

In other recent news, Paylocity has completed the acquisition of Airbase Inc., a firm specializing in finance and spend management software. This strategic move broadens Paylocity's market to include bill pay automation, expense management, and procurement capabilities, offering clients a unified system for managing both payroll and non-payroll expenses.

The acquisition is projected to account for about 1% of Paylocity's total revenue and is expected to dilute adjusted EBITDA margin by approximately 100 basis points in fiscal 2025.

In addition to this, Paylocity recently announced the departure of its Senior Vice President and Chief Technology Officer, Rachit Lohani. The company has initiated the search for a new CTO, marking a significant change in its leadership structure.

Analysts from BMO Capital Markets, Needham, and Piper Sandler have maintained confidence in Paylocity's direction, holding their respective ratings despite these developments. These firms underscore the potential benefits of the Airbase acquisition and the company's growth trajectory.

Lastly, Paylocity's financial performance has shown significant growth, with a 15% increase in recurring revenue in the fourth quarter and a 17% rise for the fiscal year. The company's total revenue climbed by 16% in Q4 and 19% for the fiscal year, reaching $1.4 billion. These developments highlight Paylocity's ongoing strategic and financial progress.

InvestingPro Insights

To complement TD Cowen's analysis of Paylocity Holding (NASDAQ:PCTY) following its Airbase acquisition, recent data from InvestingPro offers additional context. Paylocity's revenue growth remains strong, with a 19.4% increase over the last twelve months as of Q4 2024, aligning with TD Cowen's positive growth projections. The company's gross profit margin stands at an impressive 68.64%, reflecting its operational efficiency.

InvestingPro Tips highlight that Paylocity "holds more cash than debt on its balance sheet," which could be particularly relevant given the recent Airbase acquisition and its potential impact on the company's financial structure. Moreover, the tip noting "cash flows can sufficiently cover interest payments" is pertinent in light of TD Cowen's mention of increased interest expenses related to financing the acquisition.

For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Paylocity, providing a deeper understanding of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.