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Investing.com -- Guggenheim began coverage of HR software firms Paycom Software and Paylocity Holding, at a time when investors weigh the impact of AI on headcount-driven business models.
The brokerage rated Paycom Buy with a $270 price target, about 24% above its current share price, on its single-database architecture, product innovation and structural margin advantages.
Paylocity was started at Neutral with no target.
“PAYC is well positioned to capitalize on the AI era, backed by architectural advantages such as the single database foundation and a strong track record of innovation,” analysts wrote.
They pointed to products such as Beti for payroll, GONE for time-off management and IWant, a new AI-driven interface, as drivers of long-term growth.
The analysts said Paycom’s decision to manage its own data centers provides a fixed cost structure advantage as it scales, supporting “best-in-class gross/operating margins among HCM peers.”
They added the company has penetrated less than 5% of its addressable U.S. market, which they estimate at $35 billion.
On Paylocity, Guggenheim acknowledged steady execution but warned of risks tied to a softening labor backdrop.
“We are initiating coverage of Paylocity Holding Corporation (PCTY) with a Neutral rating and no price target,” analyst said.
The firm noted that while companies with 50 to 249 employees, Paylocity’s core market, are showing resilience, smaller businesses have posted weaker hiring trends, which could weigh on growth.
The analysts also flagged uncertainty about whether Paylocity can continue to beat quarterly revenue guidance by more than 2%, a pattern that has supported shares in recent quarters.
Expansion into financial services could add revenue over time, but the firm said it was too early to underwrite material upside.