On Monday, TD Cowen maintained a Hold rating on Paycom Software (NYSE:PAYC), while raising the price target to $188.00 from $171.00. The adjustment comes after the firm's analyst reviewed the company's financial forecasts in light of current federal funds rate expectations and other growth projections.
The analyst revised revenue estimates slightly downward, citing updated federal funds rate assumptions and a modest deceleration in expected ex float growth. For the fiscal years 2024 and 2025, revenue projections were trimmed by 0.1% and 1.7%, respectively. The ending federal funds rate is now anticipated to be 4.5% for fiscal year 2024 and 3.5% for fiscal year 2025, with float revenue projected at $107 million and $80 million for each year.
Ex float growth, which excludes the impact of float revenue, is now expected to be 9.9% year-over-year for fiscal 2024 and 11.5% for fiscal 2025. Adjusted EBITDA estimates for these periods have been slightly increased by 0.5% and 0.4%, primarily due to reduced research and development expenses, with margins forecasted at 39.4% and 38.6%.
Free cash flow (FCF) margins for fiscal years 2024 and 2025 have been adjusted as well, with a decrease of 4.0% forecasted for fiscal 2024 and an increase of 6.3% for fiscal 2025. This results in FCF margins of 17.1% and 18.4% for the respective years. The changes in FCF reflect an analysis of capital expenditures and deferred contract costs.
Additionally, TD Cowen has introduced estimates for fiscal year 2026. The new price target of $188 is based on a multiple of 24.5 times the estimated enterprise value to free cash flow for the calendar year 2026.
In other recent news, Paycom Software announced a 9% increase in Q2 2024 revenue to $438 million and a GAAP net income of $68 million. However, the company revised its FY24 revenue guidance downward by 40 basis points. In a strategic move, Paycom initiated a significant $1.5 billion share repurchase program. Analysts from TD Cowen and BMO Capital maintained their Hold and Market Perform ratings on Paycom, but raised their price targets.
Paycom also disclosed the retirement of board member Robert J. Levenson and CFO Craig Boelte. The company has not yet announced successors for these positions. These are recent developments that have been reported in the past articles.
InvestingPro Insights
As Paycom Software (NYSE:PAYC) continues to navigate the financial landscape, certain metrics and management strategies stand out. According to InvestingPro data, Paycom boasts an impressive gross profit margin of 86.1% over the last twelve months as of Q2 2024, highlighting the company's ability to maintain high levels of profitability. Furthermore, the data reveals a robust 14.17% revenue growth during the same period, indicating Paycom's continued expansion in the competitive software industry.
Investors may find encouragement in Paycom's strategic financial decisions, as reflected by two InvestingPro Tips: the management's aggressive share buyback initiative, which can signal confidence in the company's future, and the company's strong liquidity position, holding more cash than debt on its balance sheet. These factors, combined with a solid return of 15.76% over the last three months, suggest a potentially favorable outlook for Paycom's shareholders.
For those seeking a deeper analysis, InvestingPro offers additional insights, including 10 more InvestingPro Tips, which can be found at https://www.investing.com/pro/PAYC. These tips provide a comprehensive view of Paycom's financial health and future prospects, allowing investors to make informed decisions.
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