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Paycom stock target upgraded, hold rating on float revenue outlook

EditorNatashya Angelica
Published 12/09/2024, 09:45 AM
PAYC
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On Monday, TD Cowen maintained a Hold rating on shares of Paycom Software (ETR:SOWGn) (NYSE: NYSE:PAYC) but increased the price target to $248 from the previous $193. The adjustment reflects a reevaluation of future free cash flow valuations and updated revenue projections, particularly regarding the company's float revenue.

According to InvestingPro data, PAYC has demonstrated strong financial performance with impressive gross profit margins of 85.6% and annual revenue of $1.82 billion. The stock is currently trading near its 52-week high of $238.18, having delivered a remarkable 63.4% return over the past six months.

The firm updated its estimates for Paycom Software, taking into account the latest federal funds rate expectations and revised float revenue assumptions. The new stock price target is based on a 31.5 times multiple of the company's projected calendar year 2026 enterprise value to free cash flow (EV/FCF).

InvestingPro analysis indicates that PAYC is currently undervalued, with 11 analysts recently revising their earnings expectations upward for the upcoming period. Subscribers can access 12 additional ProTips and a comprehensive Pro Research Report for deeper insights into PAYC's valuation metrics and growth potential.

Analysts at TD Cowen have revised their revenue estimates for Paycom Software to align with recent federal funds rate projections and to incorporate a fresh perspective on historical and projected float revenue. They indicated that the general consensus on the Street might be underestimating the company's float revenue potential for fiscal year 2024 through the third quarter.

The firm's discussions with the buy-side have led them to believe that the current market estimates for Paycom's float revenue in FY24 and the following years are too low. Conversely, expectations for revenue excluding float are viewed as being too high. This reassessment has prompted the revised forecasts and the consequent increase in the price target for Paycom Software's shares.

In other recent news, Paycom Software reported an 11% year-over-year increase in revenue for the third quarter, reaching $452 million. The company's EBITDA also showed stronger than expected results. This growth is largely attributed to the company's automation initiatives, such as the GONE time-off solution.

BMO Capital Markets, Piper Sandler, and Oppenheimer all responded to these results with price target adjustments and maintained neutral stances. BMO Capital raised its target to $197, Piper Sandler to $191, and Oppenheimer maintained a Perform rating.

Paycom's CEO, Chad Richison, noted that September marked the company's largest sales month ever, primarily due to new logo acquisitions.

Despite a strong third quarter, Paycom has adopted a cautious stance for the fourth quarter, citing unpredictable bonus runs and fluctuations in interest rates as potential challenges. The company's 2024 revenue guidance, however, predicts approximately 10% growth.

These are recent developments that reflect Paycom's robust performance and its strategic focus on automation solutions. In analyst notes, interest rate cuts were identified as potential risks, potentially impacting float revenue.

On the other hand, Paycom's expansion into international markets, catering to multinational clients in four countries, was highlighted as a positive development. These insights underline the dynamic and evolving business landscape that Paycom operates within.

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

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