On Monday, TD Cowen analyst Jared Levine adjusted the stock price target for Paycom Software (ETR:SOWGn) (NYSE:NYSE:PAYC), a leading provider of comprehensive, cloud-based human capital management software, from $248.00 to $218.00 while maintaining a Hold rating on the stock.
Currently trading at $203.86, InvestingPro analysis suggests the stock is undervalued, with analyst targets ranging from $185 to $278. The revision reflects a more conservative outlook based on the company's recent guidance and expected performance in the coming years.
Levine's report noted a recalibration of the out-year expectations excluding float revenue, which is income generated from holding client funds before they are paid out for payroll and other expenses. The new forecast aligns with Paycom's anticipations of growth excluding float revenue for fiscal year 2025 to be similar to that of fiscal year 2024.
The company has demonstrated strong historical performance with revenue growth of 11.92% over the last twelve months and impressive gross margins of 85.62%. Consequently, Levine now projects ex float growth rates of 9.9% for fiscal year 2024, and 10.5% for both fiscal years 2025 and 2026.
The updated float revenue assumptions are now set at $123.6 million for fiscal year 2024, decreasing to $109.3 million for fiscal year 2025, and further to $102.8 million for fiscal year 2026. These adjustments represent a more conservative stance on the potential float revenue Paycom might generate over the next few years.
Moreover, the report indicated downward revisions to the adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) and FCF (free cash flow) estimates for the out years due to the lowered revenue assumptions.
InvestingPro data reveals the company maintains strong financial health with a GOOD overall score and attractive PEG ratio of 0.58, indicating favorable valuation relative to growth. Levine's models now estimate a FCF margin of 16.4% for fiscal year 2024, which is projected to increase slightly to 17.6% for fiscal year 2025 and to 18.0% for fiscal year 2026.
The Hold rating suggests that TD Cowen believes Paycom's stock may not significantly outperform the market in the near term, and the new price target indicates where the firm sees the stock heading within the context of its revised estimates and growth outlook.
In other recent news, Paycom Software, Inc. has made notable strides in its financial performance and strategic growth. The company reported an 11% year-over-year increase in third-quarter revenue, reaching $452 million, largely attributed to its automation initiatives.
Moreover, Paycom's EBITDA showed stronger than expected results. Despite a strong quarter, the company adopted a cautious stance for the fourth quarter, citing unpredictable bonus runs and interest rate fluctuations as potential challenges.
The appointment of Joe Binz, the current Chief Financial Officer at Atlassian (NASDAQ:TEAM), to its board of directors is another significant development for Paycom. With his extensive financial leadership in the technology sector, Binz is expected to contribute significantly to Paycom's strategic direction and growth.
In terms of analyst ratings, TD Cowen maintained a Hold rating but increased the price target to $248, while BMO Capital Markets and Piper Sandler also raised their targets to $197 and $191 respectively, maintaining neutral stances. Oppenheimer maintained a Perform rating, highlighting Paycom's strong third-quarter performance. These recent developments reflect Paycom's robust performance and strategic focus on automation solutions.
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