Paychex Inc Valuation – January 2019 $PAYX

Company Profile (excerpt from Reuters): Paychex, Inc., incorporated on April 26, 1979, is a provider of integrated human capital management (HCM) solutions for payroll, human resource (HR), retirement and insurance services for small- to medium-sized businesses in the United States. The Company also has operations in Germany. The Company offers services, including Payroll processing, Human Resource Services and Accounting and Financial Services. As of May 31, 2016, the Company serviced approximately 605,000 payroll clients. It offers a portfolio of HCM services and products that allows its clients to meet their payroll and HR needs. Its payroll-related ancillary services and human resource service (HRS) offerings often leverage the information gathered in the base payroll processing service, allowing it to provide outsourcing services covering the HCM spectrum. It also offers professional employer organization (PEO) services and provides insurance offerings through the Paychex Insurance Agency, Inc. (PIA).

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PAYX – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $23,793,370,427 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.23 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 79.53% Pass
6. Moderate PEmg Ratio PEmg < 20 26.75 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 9.86 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.23 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.47
MG Growth Estimate 7.07%
MG Value $56.02
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $35.86
MG Value based on 0% Growth $21.02
Market Implied Growth Rate 9.12%
Current Price $66.16
% of Intrinsic Value 118.10%

Paychex, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor is only concerned with the low current ratio. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.68 in 2015 to an estimated $2.47 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.12% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Paychex, Inc. revealed the company was trading above its Graham Number of $18.85. The company pays a dividend of $2.06 per share, for a yield of 3.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 26.75, which was above the industry average of 26.19. Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.97.

Paychex, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.97
Graham Number $18.85
PEmg 26.75
Current Ratio 1.23
PB Ratio 9.86
Current Dividend $2.06
Dividend Yield 3.11%
Number of Consecutive Years of Dividend Growth 5

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2018
Total Current Assets $5,290,000,000
Total Current Liabilities $4,306,800,000
Long-Term Debt $0
Total Assets $7,002,400,000
Intangible Assets $938,600,000
Total Liabilities $4,577,900,000
Shares Outstanding (Diluted Average) 361,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.80
May2018 $2.58
May2017 $2.25
May2016 $2.09
May2015 $1.85
May2014 $1.71
May2013 $1.56
May2012 $1.51
May2011 $1.42
May2010 $1.32
May2009 $1.48
May2008 $1.56
May2007 $1.35
May2006 $1.22
May2005 $0.97
May2004 $0.80
May2003 $0.78
May2002 $0.73
May2001 $0.68
May2000 $0.51
May1999 $0.25

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.47
May2018 $2.24
May2017 $2.01
May2016 $1.84
May2015 $1.68
May2014 $1.57
May2013 $1.48
May2012 $1.45
May2011 $1.42
May2010 $1.41
May2009 $1.41
May2008 $1.31
May2007 $1.13
May2006 $0.98
May2005 $0.84
May2004 $0.75
May2003 $0.68

Recommended Reading:

Other ModernGraham posts about the company

Paychex Inc Valuation – March 2018 $PAYX
Paychex Inc Valuation – June 2016 $PAYX
Paychex Inc. Valuation – November 2015 Update $PAYX
Paychex Inc. Analysis – August 2015 Update $PAYX
30 Companies in the Spotlight This Week – 5/23/15

Other ModernGraham posts about related companies

Fleetcor Technologies Inc Valuation – January 2019 $FLT
TrueBlue Inc Valuation – October 2018 $TBI
Convergys Corp Valuation – September 2018 $CVG
Strategic Education Inc Valuation – August 2018 $STRA
Multi-Color Corp Valuation – August 2018 $LABL
Korn/Ferry International Valuation – August 2018 $KFY
Kelly Services Inc Valuation – August 2018 $KELYA
Jack Henry & Associates Inc Valuation – August 2018 $JKHY
Dun & Bradstreet Corp Valuation – July 2018 $DNB
CoreLogic Inc Valuation – July 2018 $CLGX

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Paychex Inc Valuation – March 2018 $PAYX

Company Profile (obtained from Marketwatch): Paychex, Inc. engages in the provision of payroll, human resource, insurance, and benefits outsourcing solutions for small and medium sized businesses. It offers payroll processing, payroll tax administration services, employee payment services, regulatory compliance services, Paychex HR Solutions, retirement services administration, insurance services, and eServices and other human resource services and products. The company was founded by Blase Thomas Golisano in 1971 and is headquartered in Rochester, NY.

PAYX Chart

PAYX data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PAYX – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $23,893,018,387 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.09 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 59.24% Pass
6. Moderate PEmg Ratio PEmg < 20 30.63 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 12.21 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.09 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.17
MG Growth Estimate 5.81%
MG Value $43.72
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $31.49
MG Value based on 0% Growth $18.46
Market Implied Growth Rate 11.06%
Current Price $66.52
% of Intrinsic Value 152.17%

Paychex, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor is only concerned with the low current ratio. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.57 in 2014 to an estimated $2.17 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.06% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Paychex, Inc. revealed the company was trading above its Graham Number of $17.07. The company pays a dividend of $1.84 per share, for a yield of 2.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 30.63, which was below the industry average of 35.6, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.77.

Paychex, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $0.77
Graham Number $17.07
PEmg 30.63
Current Ratio 1.09
PB Ratio 12.21
Current Dividend $1.84
Dividend Yield 2.77%
Number of Consecutive Years of Dividend Growth 4

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2017
Total Current Assets $5,993,000,000
Total Current Liabilities $5,501,700,000
Long-Term Debt $0
Total Assets $7,684,600,000
Intangible Assets $775,500,000
Total Liabilities $5,715,700,000
Shares Outstanding (Diluted Average) 361,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.38
May2017 $2.25
May2016 $2.09
May2015 $1.85
May2014 $1.71
May2013 $1.56
May2012 $1.51
May2011 $1.42
May2010 $1.32
May2009 $1.48
May2008 $1.56
May2007 $1.35
May2006 $1.22
May2005 $0.97
May2004 $0.80
May2003 $0.78
May2002 $0.73
May2001 $0.68
May2000 $0.51
May1999 $0.37
May1998 $0.28

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.17
May2017 $2.01
May2016 $1.84
May2015 $1.68
May2014 $1.57
May2013 $1.48
May2012 $1.45
May2011 $1.42
May2010 $1.41
May2009 $1.41
May2008 $1.31
May2007 $1.13
May2006 $0.98
May2005 $0.84
May2004 $0.75
May2003 $0.68
May2002 $0.59

Recommended Reading:

Other ModernGraham posts about the company

Paychex Inc. Valuation – November 2015 Update $PAYX
Paychex Inc. Analysis – August 2015 Update $PAYX
30 Companies in the Spotlight This Week – 5/23/15
Paychex Inc. Quarterly Valuation – May 2015 $PAYX
27 Companies in the Spotlight This Week – 2/14/15

Other ModernGraham posts about related companies

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Exponent Inc Valuation – Initial Coverage $EXPO
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Strayer Education Inc Valuation – Initial Coverage $STRA
Robert Half International Inc Valuation – February 2017 $RHI
Multi-Color Corporation Valuation – Initial Coverage $LABL
Kinaxis Inc Valuation – Initial Coverage $TSE:KXS
Korn-Ferry International Valuation – Initial Coverage $KFY

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Paychex Inc Valuation – June 2016 $PAYX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – March 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Paychex Inc (PAYX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Paychex, Inc., is a provider of integrated payroll, human Resource, insurance, and benefits outsourcing solutions for small- to medium-sized businesses. The Company focuses on providing payroll and human Resource services; delivering these services; growing its client base, through the efforts of its direct sales force; improving client service, through its leading-edge technology; capitalizing on the growth opportunities within its existing client base and from new clients; investing in business through expansion of its services and product offerings; and supplementing its growth through strategic acquisitions. The Company offers services and products that allow its clients to meet their diverse payroll and human Resource needs. These include: payroll processing; payroll tax administration services; employee payment services; regulatory compliance services; Paychex HR Services; retirement services administration; insurance services; and online HR administration services.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of PAYX – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $19,448,591,543 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.09 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 28.25% Fail
6. Moderate PEmg Ratio PEmg < 20 29.75 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 10.54 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.09 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

PAYX value chart June 2016

EPSmg $1.83
MG Growth Estimate 4.01%
MG Value $30.29
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $26.59
MG Value based on 0% Growth $15.59
Market Implied Growth Rate 10.62%
Current Price $54.56
% of Intrinsic Value 180.14%

Paychex, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the low current ratio. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.45 in 2012 to an estimated $1.83 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.62% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Paychex, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

PAYX charts June 2016

Net Current Asset Value (NCAV) $0.86
Graham Number $15.57
PEmg 29.75
Current Ratio 1.09
PB Ratio 10.54
Current Dividend $1.64
Dividend Yield 3.01%
Number of Consecutive Years of Dividend Growth 3

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 2/1/2016
Total Current Assets $5,503,600,000
Total Current Liabilities $5,039,200,000
Long-Term Debt $0
Total Assets $7,067,500,000
Intangible Assets $729,700,000
Total Liabilities $5,193,400,000
Shares Outstanding (Diluted Average) 362,200,000

Earnings Per Share History

Next Fiscal Year Estimate $2.07
May2015 $1.85
May2014 $1.71
May2013 $1.56
May2012 $1.51
May2011 $1.42
May2010 $1.32
May2009 $1.48
May2008 $1.56
May2007 $1.35
May2006 $1.22
May2005 $0.97
May2004 $0.80
May2003 $0.78
May2002 $0.73
May2001 $0.68
May2000 $0.51
May1999 $0.37
May1998 $0.28
May1997 $0.21
May1996 $0.15

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.83
May2015 $1.68
May2014 $1.57
May2013 $1.48
May2012 $1.45
May2011 $1.42
May2010 $1.41
May2009 $1.41
May2008 $1.31
May2007 $1.13
May2006 $0.98
May2005 $0.84
May2004 $0.75
May2003 $0.68
May2002 $0.59
May2001 $0.49
May2000 $0.36

Recommended Reading:

Other ModernGraham posts about the company

Paychex Inc. Valuation – November 2015 Update $PAYX
Paychex Inc. Analysis – August 2015 Update $PAYX
30 Companies in the Spotlight This Week – 5/23/15
Paychex Inc. Quarterly Valuation – May 2015 $PAYX
27 Companies in the Spotlight This Week – 2/14/15

Other ModernGraham posts about related companies

Automatic Data Processing Valuation – May 2016 $ADP
Robert Half International Inc Valuation – February 2016 $RHI
Accenture PLC Valuation – February 2016 $ACN
Cintas Corp Valuation – December 2015 Update $CTAS
Accenture PLC Valuation – February 2016 $ACN
Cintas Corp Valuation – December 2015 Update $CTAS
The Best Companies of the Business Support Industry – November 2015
Paychex Inc. Valuation – November 2015 Update $PAYX
Robert Half International Inc. Valuation – November 2015 Update $RHI
Alliance Data Systems Corporation Analysis – October 2015 Update $ADS

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Paychex Inc. Valuation – November 2015 Update $PAYX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Paychex Inc. (PAYX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Paychex, Inc., is a provider of integrated payroll, human Resource, insurance, and benefits outsourcing solutions for small- to medium-sized businesses. The Company focuses on providing payroll and human Resource services; delivering these services; growing its client base, through the efforts of its direct sales force; improving client service, through its leading-edge technology; capitalizing on the growth opportunities within its existing client base and from new clients; investing in business through expansion of its services and product offerings; and supplementing its growth through strategic acquisitions. The Company offers services and products that allow its clients to meet their diverse payroll and human Resource needs. These include: payroll processing; payroll tax administration services; employee payment services; regulatory compliance services; Paychex HR Services; retirement services administration; insurance services; and online HR administration services.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[level-mg-stocks-screens-subscriber]

Downloadable PDF version of this valuation:

ModernGraham Valuation of PAYX – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $19,288,891,124 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.13 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 26.42% Fail
6. Moderate PEmg Ratio PEmg < 20 29.60 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 10.84 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.13 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

PAYX value Chart November 2015

EPSmg $1.81
MG Growth Estimate 3.73%
MG Value $28.85
Opinion Overvalued
MG Value based on 3% Growth $26.21
MG Value based on 0% Growth $15.36
Market Implied Growth Rate 10.55%
Current Price $53.50
% of Intrinsic Value 185.45%

Paychex Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned by the low current ratio.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.45 in 2012 to an estimated $1.81 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 10.55% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Paychex Inc. (PAYX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

PAYX Charts November 2015

Net Current Asset Value (NCAV) $1.09
Graham Number $14.92
PEmg 29.60
Current Ratio 1.13
PB Ratio 10.84
Dividend Yield 2.92%
Number of Consecutive Years of Dividend Growth 3

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Aug15
Total Current Assets $4,588,200,000
Total Current Liabilities $4,046,400,000
Long-Term Debt $0
Total Assets $5,983,000,000
Intangible Assets $594,500,000
Total Liabilities $4,192,200,000
Shares Outstanding (Diluted Average) 362,800,000

Earnings Per Share History

Next Fiscal Year Estimate $1.99
May15 $1.85
May14 $1.71
May13 $1.56
May12 $1.51
May11 $1.42
May10 $1.32
May09 $1.48
May08 $1.56
May07 $1.35
May06 $1.22
May05 $0.97
May04 $0.80
May03 $0.78
May02 $0.73
May01 $0.68
May00 $0.51
May99 $0.37
May98 $0.28
May97 $0.21
May96 $0.15

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.81
May15 $1.68
May14 $1.57
May13 $1.48
May12 $1.45
May11 $1.42
May10 $1.41
May09 $1.41
May08 $1.31
May07 $1.13
May06 $0.98
May05 $0.84
May04 $0.75
May03 $0.68
May02 $0.59
May01 $0.49
May00 $0.36

Recommended Reading:

Other ModernGraham posts about the company

Paychex Inc. Analysis – August 2015 Update $PAYX
30 Companies in the Spotlight This Week – 5/23/15
Paychex Inc. Quarterly Valuation – May 2015 $PAYX
27 Companies in the Spotlight This Week – 2/14/15
Paychex Inc. Quarterly Valuation – February 2015 $PAYX

Other ModernGraham posts about related companies

Robert Half International Inc. Valuation – November 2015 Update $RHI
Alliance Data Systems Corporation Analysis – October 2015 Update $ADS
Automatic Data Processing Analysis – September 2015 Update $ADP
Accenture PLC Analysis – September 2015 Update $ACN
Dun & Bradstreet Corp. Analysis – September 2015 Update $DNB
Cintas Corporation Analysis – August 2015 Update $CTAS
Apollo Education Group Inc. Analysis – Initial Coverage $APOL
Paychex Inc. Analysis – August 2015 Update $PAYX
Robert Half International Inc. Analysis – August 2015 Update $RHI
United Rentals Inc. Analysis – Initial Coverage $URI

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Paychex Inc. Analysis – August 2015 Update $PAYX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Paychex Inc. (PAYX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Paychex, Inc., is a provider of integrated payroll, human Resource, insurance, and benefits outsourcing solutions for small- to medium-sized businesses. The Company focuses on providing payroll and human Resource services; delivering these services; growing its client base, through the efforts of its direct sales force; improving client service, through its leading-edge technology; capitalizing on the growth opportunities within its existing client base and from new clients; investing in business through expansion of its services and product offerings; and supplementing its growth through strategic acquisitions. The Company offers services and products that allow its clients to meet their diverse payroll and human Resource needs. These include: payroll processing; payroll tax administration services; employee payment services; regulatory compliance services; Paychex HR Services; retirement services administration; insurance services; and online HR administration services.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of PAYX – August 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Fail
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 1.81
MG Growth Estimate 3.73%
MG Value $28.85
Opinion Overvalued
MG Value based on 3% Growth $26.21
MG Value based on 0% Growth $15.36
Market Implied Growth Rate 9.20%
Current Price $48.60
% of Intrinsic Value 168.47%

Paychex Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned with the low current ratio.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.45 in 2012 to an estimated $1.81 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 9.2% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Paychex Inc. (PAYX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

PAYX charts August 2015

Net Current Asset Value (NCAV) $1.12
PEmg 26.89
Current Ratio 1.12
PB Ratio 9.91
Dividend Yield 3.13%
Number of Consecutive Years of Dividend Growth 0

 

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Most Recent Balance Sheet Figures

Total Current Assets $5,103,200,000
Total Current Liabilities $4,573,000,000
Long-Term Debt $0
Total Assets $6,482,500,000
Intangible Assets $593,900,000
Total Liabilities $4,697,000,000
Shares Outstanding (Diluted Average) 364,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.99
May15 $1.85
May14 $1.71
May13 $1.56
May12 $1.51
May11 $1.42
May10 $1.32
May09 $1.48
May08 $1.56
May07 $1.35
May06 $1.22
May05 $0.97
May04 $0.80
May03 $0.78
May02 $0.73
May01 $0.68
May00 $0.51
May99 $0.37
May98 $0.28
May97 $0.21
May96 $0.15

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.81
May15 $1.68
May14 $1.57
May13 $1.48
May12 $1.45
May11 $1.42
May10 $1.41
May09 $1.41
May08 $1.31
May07 $1.13
May06 $0.98
May05 $0.84
May04 $0.75
May03 $0.68
May02 $0.59
May01 $0.49
May00 $0.36

Recommended Reading:

Other ModernGraham posts about the company

30 Companies in the Spotlight This Week – 5/23/15
Paychex Inc. Quarterly Valuation – May 2015 $PAYX
27 Companies in the Spotlight This Week – 2/14/15
Paychex Inc. Quarterly Valuation – February 2015 $PAYX
27 Companies in the Spotlight This Week – 11/8/14

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Paychex Inc. Quarterly Valuation – May 2015 $PAYX
Robert Half International Quarterly Valuation – May 2015 $RHI
Omnicom Group Inc. Annual Valuation – 2015 $OMC
Automatic Data Processing Quarterly Valuation – March 2015 $ADP
Cintas Corporation Quarterly Valuation – March 2015 $CTAS

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.

Paychex Inc. Quarterly Valuation – May 2015 $PAYX

500px-Paychex_logo.svgPaychex Inc. (PAYX) is in a strong financial position, with no long-term debt on its books. In addition, some analysts believe the company will continue to improve its margins. The quarterly dividend is consistent, and the yield is fairly high. However, it is critical when analyzing Paychex to consider the company’s intrinsic value in relation to its price.

In fact, Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether a company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits. Here’s a look at how the company fares in the ModernGraham valuation model.

The model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using the ModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

PAYX Chart

PAYX data by YCharts

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Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – FAIL
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – Has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – Earnings per share has increased by at least 1/3 over the last 10 years, using 3-year averages at the beginning and end of the period – FAIL
  6. Moderate PEmg (price over normalized earnings) Ratio – PEmg is less than 20 – FAIL
  7. Moderate Price-to-Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – Must pass at least 4 of the following 5 tests or be suitable for a Defensive Investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  4. Dividend Record – Currently pays a dividend – PASS
  5. Earnings Growth – EPSmg greater than that 5 years ago – PASS

Valuation Summary

Key Data

Recent Price $49.90
MG Value $22.91
MG Opinion Overvalued
Value Based on 3% Growth $24.18
Value Based on 0% Growth $14.17
Market Implied Growth Rate 10.71%
Net Current Asset Value (NCAV) $1.33
PEmg 29.93
Current Ratio 1.11
PB Ratio 9.73

Balance Sheet – February 2015

Current Assets $5,957,000,000
Current Liabilities $5,348,000,000
Total Debt $0
Total Assets $7,344,000,000
Intangible Assets $599,000,000
Total Liabilities $5,472,000,000
Outstanding Shares 365,000,000

Earnings Per Share

2015 (estimate) $1.81
2014 $1.71
2013 $1.56
2012 $1.51
2011 $1.42
2010 $1.32
2009 $1.48
2008 $1.56
2007 $1.35
2006 $1.22
2005 $0.97

Earnings Per Share – ModernGraham

2015 (estimate) $1.67
2014 $1.57
2013 $1.48
2012 $1.45
2011 $1.42
2010 $1.41

Dividend History

PAYX Dividend Chart

PAYX Dividend data by YCharts

Conclusion

Paychex passes the initial requirements of the Enterprising Investor but not of the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor is only concerned by the low current ratio. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has seen its EPSmg (normalized earnings) rise from $1.42 in 2011 to only an estimated $1.67 for 2015. This is a weak level of earnings growth, and does not support the market’s implied estimate for 10.71% annual growth over the next 7-10 years.

In fact, the recent earnings growth has averaged only 3.49% per year, so the market is expecting a very significant shift in earnings in order to justify the current price. The ModernGraham valuation model returns an estimate of intrinsic value falling below the market’s price, indicating that the company is overvalued at the present time.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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Paychex Inc. Quarterly Valuation – February 2015 $PAYX

500px-Paychex_logo.svg

Paychex Inc. is suitable for the Enterprising Investor, but not the more conservative Defensive Investor, who is concerned with the low current ratio, insufficient earnings growth over the last ten years, as well as the high PEmg and PB ratios. The Enterprising Investor, on the other hand, is only concerned by the low current ratio. As a result, the Enterprising Investor should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $1.42 in 2011 to only an estimated $1.66 for 2015. This demonstrated growth does not support the market’s implied estimate of 10.15%. As a result, the ModernGraham valuation model returns an estimate of intrinsic value below the market price at this time, and the company appears to be overvalued by the market.

Be sure to check out previous ModernGraham valuations of Paychex Inc. (PAYX) for greater perspective!

Read the full valuation on Seeking Alpha!

PAYX Chart

PAYX data by YCharts

Disclaimer:  The author did not hold a position in Paychex Inc. (PAYX) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Paychex Inc. Quarterly Valuation – November 2014 $PAYX

500px-Paychex_logo.svg

Paychex Inc. is suitable for the Enterprising Investor but not the Defensive Investor, who is concerned with the low current ratio, lack of earnings growth over the last ten years and the high PEmg and PB ratios. The Enterprising Investor’s only issue with the company is the low current ratio. As a result, the Enterprising Investor should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $1.42 in 2011 to an estimated $1.67 for 2015. This demonstrated growth does not support the market’s implied estimate of 9.48%. In fact, the demonstrated growth over the last several years is only 3.6% per year. The company would have to see a significant change in its level of growth in order to meet the market’s estimated growth level. As a result, the ModernGraham valuation model returns an estimate of intrinsic value below the market price at this time, and the company appears to be overvalued by the market.

Be sure to check out previous ModernGraham valuations of Paychex Inc. for better perspective.

Read the full valuation on Seeking Alpha!

PAYX Chart

PAYX data by YCharts

Paychex Inc. Quarterly Valuation – July 2014 $PAYX

500px-Paychex_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies to Research for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Paychex Inc. (PAYX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Paychex, Inc. is a provider of payroll, human resource, and benefits outsourcing solutions for small to medium-sized businesses. As of May 31, 2012, the Company serviced approximately 567,000 clients, including approximately 2,000 clients through four offices in Germany. The Company offers a portfolio of services and products that allows its clients to meet their diverse payroll and human resource needs. These include payroll processing; payroll tax administration services; employee payment services; regulatory compliance services (new-hire reporting and garnishment processing); Paychex HR Solutions; retirement services administration; insurance services; eServices, and other human resource services and products. In June 2014, the Company acquired nettime solutions, LLC, cloud-based time and attendance solutions provider.
PAYX Chart

PAYX data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $42.39
MG Value $18.55
MG Opinion Overvalued
Value Based on 3% Growth $22.70
Value Based on 0% Growth $13.31
Market Implied Growth Rate 9.29%
Net Current Asset Value (NCAV) $1.15
PEmg 27.08
Current Ratio 1.13
PB Ratio 8.66

Balance Sheet – 3/31/2014

Current Assets $5,011,400,000
Current Liabilities $4,438,900,000
Total Debt $0
Total Assets $6,370,100,000
Intangible Assets $580,900,000
Total Liabilities $4,593,100,000
Outstanding Shares 363,000,000

Earnings Per Share

2014 $1.71
2013 $1.56
2012 $1.51
2011 $1.42
2010 $1.32
2009 $1.48
2008 $1.56
2007 $1.35
2006 $1.22
2005 $0.97
2004 $0.80

Earnings Per Share – ModernGraham

2014 $1.57
2013 $1.48
2012 $1.45
2011 $1.42
2010 $1.41
2009 $1.41

Dividend History

PAYX Dividend Chart

PAYX Dividend data by YCharts

Conclusion:

Paychex is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the low current ratio and the high PEmg and PB ratios.  The Enterprising Investor’s only initial concern is with the high level of debt relative to the current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of Automatic Data Processing (ADP).  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.41 in 2010 to only $1.57 for 2014. This low level of demonstrated growth does not support the market’s implied estimate of 9.29% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out the previous ModernGraham valuations of Paychex Inc. (PAYX) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Paychex (PAYX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Paychex Inc. (PAYX) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Paychex Inc. (PAYX) Quarterly Valuation – March 2014

500px-Paychex_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Paychex Inc. fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Paychex, Inc. is a provider of payroll, human resource, and benefits outsourcing solutions for small to medium-sized businesses. As of May 31, 2012, the Company serviced approximately 567,000 clients, including approximately 2,000 clients through four offices in Germany. The Company offers a portfolio of services and products that allows its clients to meet their diverse payroll and human resource needs. These include payroll processing; payroll tax administration services; employee payment services; regulatory compliance services (new-hire reporting and garnishment processing); Paychex HR Solutions; retirement services administration; insurance services; eServices, and other human resource services and products. In January 2012, the Company acquired Icon Time Systems, Inc. In December 2012, the Company acquired ExpenseWire from Rearden Commerce Inc. In June 2013, Paychex Inc announced that it has acquired HR Services, Inc. and myStaffingPro.

PAYX Chart

PAYX data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $41.92
MG Value $18.40
MG Opinion Overvalued
Value Based on 3% Growth $22.65
Value Based on 0% Growth $13.28
Market Implied Growth Rate 9.17%
Net Current Asset Value (NCAV) $1.20
PEmg 26.84
Current Ratio 1.11
PB Ratio 8.53

Balance Sheet – 2/28/2014

Current Assets $5,719,300,000
Current Liabilities $5,138,900,000
Total Debt $0
Total Assets $7,069,400,000
Intangible Assets $580,500,000
Total Liabilities $5,281,200,000
Outstanding Shares 363,700,000

Earnings Per Share

2014 (estimate) $1.70
2013 $1.56
2012 $1.51
2011 $1.42
2010 $1.32
2009 $1.48
2008 $1.56
2007 $1.35
2006 $1.22
2005 $0.97
2004 $0.80
2003 $0.78

Earnings Per Share – ModernGraham

2014 (estimate) $1.56
2013 $1.48
2012 $1.45
2011 $1.42
2010 $1.41
2009 $1.41

Dividend History

PAYX Dividend Chart

PAYX Dividend data by YCharts

Conclusion:

Paychex Inc. is suitable for the Enterprising Investor but not the Defensive Investor.  The company’s current ratio is too low while the PEmg and PB ratios are too high for the Defensive Investor.  The Enterprising Investor is willing to accept the low current ratio, though, because the company holds no long-term debt.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company as well as other opportunities, including a review of ModernGraham’s valuation of Automatic Data Processing (ADP) and 5 Undervalued Companies for the Enterprising Investor.  From the valuation side of things, the company appears overvalued after demonstrating very little growth in recent history.  The company’s EPSmg (normalized earnings) have only grown from $1.41 in 2010 to an estimated $1.56 for 2014.  This low level of demonstrated growth does not support the market’s current implied estimate of 9.17% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well below the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Paychex Inc. (PAYX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Paychex Inc. (PAYX) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

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