Paychex (PAXY) to Report Q3 Earnings: What's in the Cards?

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Paychex, Inc. PAYX is scheduled to report third-quarter fiscal 2019 results on Mar 27, before market open.

While the top line is likely to benefit from strength across total service revenues and interest on funds held for clients, the bottom line is expected to be driven by lower tax rates.

Over the past, shares of Paychex have gained 28.1% compared with 18.6% rise of the industry it belongs to and 5.6% increase of the Zacks S&P 500 composite.

Top Line Likely to Improve Year Over Year

The Zacks Consensus Estimate for Paychex’s total revenues in third-quarter fiscal 2019 is pegged at $1.03 billion, indicating an increase of 19.4% year over year. The top line is likely to benefit from strength across total service revenues and interest on funds held for clients. In second-quarter fiscal 2019, total revenues of $858.9 million increased 7% year over year.

Post-adoption of Accounting Standards Codification Topic 606, Paychex classified its total service revenues as Management Solutions revenues, and PEO and insurance services revenues.

Revenues from Management Solutions is expected to be driven by increases in the company’s client bases across many of its services and contribution from the acquisition of Lessor Group.

The same for PEO and insurance services revenues should benefit from increase in clients and client worksite employees across the company’s PEO business. Insurance Services revenues should benefit from an increase in the number of health and benefit applicants.

Interest on funds held by clients is likely to benefit from higher average interest rates earned.

Earnings Likely to Grow on Tax Reform

The U.S. Tax Cuts and Jobs Act (TCJA), which reduced corporate tax rates significantly, is likely to boost Paychex’s earnings in the to-be-reported quarter. Notably, the consensus estimate for earnings per share (EPS) is pegged at 89 cents, indicating year-over-year growth of 41.3%.

In second-quarter fiscal 2019, adjusted earnings per share of 65 cents increased 20% year over year.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP . Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter .

Paychex has a Zacks Rank #2 and an Earnings ESP of 0.00%.

Paychex, Inc. Price and EPS Surprise

Paychex, Inc. Price and EPS Surprise | Paychex, Inc. Quote

Stocks to Consider

Here are a few stocks from the broader Zacks Business Services  sector that investors may consider as our model shows that these have the right combination of elements to beat estimates.

IHS Markit INFO has an Earnings ESP of +0.53% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here .

Avis Budget CAR has an Earnings ESP of +19.61% and a Zacks Rank #3.

Accenture ACN has an Earnings ESP of +1.19% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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