Earnings stock to watch: Paychex, Inc. (NASDAQ: PAYX)

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Paychex, Inc. (NASDAQ: PAYX) posted decent results for the second quarter of FY 20. Total service revenue grew 15% to $971 million. Management Solutions revenue rose 6% $727 million and PEO and Insurance Services grew 57% to $244 million. Management Solutions has delivered the revenue growth of 6%, which exceeded the company’s expectations, as it included a contribution from Oasis of slightly less than 1%. The remaining growth was mainly due to the increases in the client bases across many of the services, along with growth in revenue per client. The revenue per client improved due to higher price realization and increased penetration of the suite of solutions, particularly time and attendance, retirement services and HR outsourcing. Retirement services revenue increased due to an increase in asset fee revenue earned on the asset value participant funds. PEO and Insurance Services posted the revenue growth of 57% was mainly due to the acquisition of Oasis, which contributed 47% to this growth. Overall, the company has reported 8% rise in the adjusted net income to $254 million.

Moreover, the operating income grew 11% to $342 million. The company posted the operating margin of 34.5% for the second quarter, 16% increase in EBITDA and about 40% of EBITDA margin. The EBITDA margin rose slightly compared to a year ago, while operating margin fell due to the amortization of intangibles associated with the Oasis acquisition.

Further, the company’s long-term portfolio has an average yield now of 2.1%, average duration of 3.1 years. The company’s combined portfolios earned an average rate of return of 2% for the second quarter, which is up from 1.9% last year. The company had generated cash, restricted cash, total corporate investments were of $708 million as of the end of the second quarter. Funds held for clients were $3.7 billion compared to $3.8 billion as of the end of last year, May 31, 2019.

PAYX in the second quarter of FY 20 has reported the adjusted earnings per share of 70 cents, beating the analysts’ estimates for the adjusted earnings per share of 68 cents. The company had reported the adjusted revenue growth of 15.3 percent to $990.70 million in the second quarter of FY 20, beating the analysts’ estimates for revenue of $987.65 million.

For FY 20, the company expects total revenue to grow between 10% to 11% and adjusted diluting earnings per diluted earnings per share are expected to grow at approximately 9%.

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