BUY BUY BUY BUY: Paychex Inc

July 16, 2017
NASDAQ: PAYX
PAYCHEX INC
BUY HOLD SELL
BUY
RATING SINCE 07/13/2010
A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F TARGET PRICE $66.07
Annual Dividend Rate Annual Dividend Yield Beta Market Capitalization 52-Week Range Price as of 7/13/2017
$1.84 3.21% 0.96 $20.6 Billion $52.78-$63.03 $57.20
Sector: Technology Sub-Industry: Data Processing & Outsourced Services Source: S&P
Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years
PAYX BUSINESS DESCRIPTION
Paychex, Inc. provides payroll, human resource, 68
insurance, and benefits outsourcing solutions for TARGET
TARGET
TARGETPRICE
TARGET PRICE$66.07
PRICE $66.07
$66.07 65
small to medium-sized businesses in the United 63
States and Germany.
60
STOCK PERFORMANCE (%) 58
3 Mo. 1 Yr. 3 Yr (Ann) 55
Price Change -1.20 -6.40 10.92 53
50
GROWTH (%)
Last Qtr 12 Mo. 3 Yr CAGR 48
Revenues 5.92 6.75 7.75 45
Net Income 9.65 7.99 9.21 43
EPS 10.20 8.13 9.74 Rating History
BUY
RETURN ON EQUITY (%)
Volume in Millions
PAYX Ind Avg S&P 500 25
Q4 2016 41.79 43.55 13.16
Q4 2015 39.58 47.51 11.83
Q4 2014 37.79 59.60 13.71
0
2015 2016 2017
P/E COMPARISON COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History
RECOMMENDATION
We rate PAYCHEX INC (PAYX) a BUY. This is based on the convergence of positive investment measures,
which should help this stock outperform the majority of stocks that we rate. The company's strengths can be
seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income,
expanding profit margins and largely solid financial position with reasonable debt levels by most measures.
We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.
25.31 32.58 24.41 HIGHLIGHTS

PAYX's revenue growth has slightly outpaced the industry average of 1.9%. Since the same quarter one year
PAYX Ind Avg S&P 500
prior, revenues slightly increased by 5.9%. This growth in revenue appears to have trickled down to the
company's bottom line, improving the earnings per share.
EPS ANALYSIS¹ ($)
PAYCHEX INC has improved earnings per share by 10.2% in the most recent quarter compared to the same
quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the
past two years. We feel that this trend should continue. During the past fiscal year, PAYCHEX INC increased
its bottom line by earning $2.26 versus $2.09 in the prior year. This year, the market expects an improvement in
earnings ($2.37 versus $2.26).
The net income growth from the same quarter one year ago has significantly exceeded that of the IT Services
Q1 0.47
Q2 0.47
Q3 0.46
Q4 0.44
Q1 0.58
Q2 0.52
Q3 0.50
Q4 0.49
Q1 0.60
Q2 0.56
Q3 0.56
Q4 0.54
industry average, but is less than that of the S&P 500. The net income increased by 9.7% when compared to
the same quarter one year prior, going from $178.10 million to $195.30 million.
2014 2015 2016
NA = not available NM = not meaningful
The gross profit margin for PAYCHEX INC is currently very high, coming in at 75.56%. It has increased from the
same quarter the previous year. Along with this, the net profit margin of 24.45% significantly outperformed
1 Compustat fiscal year convention is used for all fundamental
data items. against the industry average.
PAYX has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a
relatively favorable sign. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.18 is
very weak and demonstrates a lack of ability to pay short-term obligations.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy Report Date: July 16, 2017 PAGE 1
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2016. All rights reserved.
July 16, 2017
NASDAQ: PAYX
PAYCHEX INC
Sector: Technology Data Processing & Outsourced Services Source: S&P
$1.84 3.21% 0.96 $20.6 Billion $52.78-$63.03 $57.20
PEER GROUP ANALYSIS INDUSTRY ANALYSIS

REVENUE GROWTH AND EBITDA MARGIN*
The US IT Services industry includes companies that provide IT-related services, such as consulting,
installation, systems integration, software development, and support. It includes providers of commercial
70%
TSS electronic data processing and business process outsourcing (BPO) services, including back-office
FA
operations. There are about 35,000 such U.S. companies in this space. Major players are Accenture (ACN),
VO
Computer Sciences (CSC), and the technology consulting arms of International Business Machines (IBM) and
RA
BL
Xerox (XRX).
E
The industry is highly competitive, mature, and characterized by rapid technological changes, evolving
industry standards, and changing customer preferences. Companies compete on service quality, product
FIS performance, technological innovation, and pricing. Demand is affected by the IT spending budget of clients,
Revenue Growth (TTM)
which in turn, is affected by the level of economic activity in the industries and markets they serve. IT
PYPLADS spending has shifted from hardware to software and services.
VNTV FLT MA
UN
FA
ADP PAYX The emergence of business process outsourcing has altered the competitive landscape within the industry by
VO
FISV
-10%
making high quality services available at reduced costs. The 50 largest companies hold more than 80% of the
RA
WU
B
market. Industry players use outsourcing as a tool to drive revenue growth by expanding service offerings
LE
20% 60% that are costly to develop and deliver internally.

EBITDA Margin (TTM)
Companies with higher EBITDA margins and Consolidation is on the rise as large companies strive to expand their geographical foot-print and service
revenue growth rates are outperforming companies portfolio.
with lower EBITDA margins and revenue growth
rates. Companies for this scatter plot have a market The economic may add to IT spending in the coming quarters and spurring the growth of existing and new
capitalization between $8.9 Billion and $132.2 Billion. business. Another major challenge is anti-outsourcing as part of immigration reform legislation under
Companies with NA or NM values do not appear. discussion in Congress, aimed at limiting or restricting outsourcing to address unemployment concerns in the
US. Certain instances of theft and misappropriation of sensitive client information have marred growth.
*EBITDA – Earnings Before Interest, Taxes, Depreciation and
Amortization.
The outlook for the IT services industry remains positive as spending on technology products and services is
REVENUE GROWTH AND EARNINGS YIELD expected to grow, albeit at a slower rate in the immediate future. However, companies’ sustainability in an
intense competitive environment will depend on their ability to fulfill demand in a cost-competitive and
70%
efficient manner.
TSS
FA
VO
RA
PEER GROUP: IT Services

BL
Recent Market Price/ Net Sales Net Income

E
Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M)
PAYX PAYCHEX INC 57.20 20,558 25.31 3,151.30 817.30
FIS WU WESTERN UNION CO 18.94 8,926 41.17 5,427.60 229.20
PYPL PAYPAL HOLDINGS INC 57.90 69,553 49.07 11,273.00 1,420.00
Revenue Growth (TTM)
PYPL ADS ADP AUTOMATIC DATA PROCESSING 101.63 45,470 26.26 12,213.20 1,749.60
FLT
UN
FIS FIDELITY NATIONAL INFO SVCS 89.25 29,504 45.54 9,315.00 651.00
VNTV MA
FA
PAYX
FISV ADP FISV FISERV INC 123.27 26,180 30.74 5,568.00 888.00
VO
-10%
RA
WU ADS ALLIANCE DATA SYSTEMS CORP 264.57 14,730 35.04 7,582.70 437.50
BLE
1.75% 4% FLT FLEETCOR TECHNOLOGIES INC 149.50 13,793 30.57 1,937.72 464.99
Earnings Yield (TTM) MA MASTERCARD INC 125.47 132,236 32.76 11,064.00 4,181.00
Companies that exhibit both a high earnings yield TSS TOTAL SYSTEM SERVICES INC 60.66 11,163 33.51 4,615.42 334.88
and high revenue growth are generally more VNTV VANTIV INC 64.28 10,415 51.42 3,688.57 202.36
attractive than companies with low revenue growth The peer group comparison is based on Major Data Processing & Outsourced Services companies of comparable size.
and low earnings yield. Companies for this scatter
plot have revenue growth rates between -0.6% and
61.6%. Companies with NA or NM values do not
appear.
July 16, 2017
NASDAQ: PAYX
PAYCHEX INC
$1.84 3.21% 0.96 $20.6 Billion $52.78-$63.03 $57.20
COMPANY DESCRIPTION STOCK-AT-A-GLANCE

Paychex, Inc. provides payroll, human resource, Below is a summary of the major fundamental and technical factors we consider when determining our
insurance, and benefits outsourcing solutions for small to overall recommendation of PAYX shares. It is provided in order to give you a deeper understanding of our
medium-sized businesses in the United States and rating methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is
Germany. The company offers payroll processing services important to note, however, that these factors only tell part of the story. To gain an even more comprehensive
that include payroll tax administration services; understanding of our stance on the stock, these factors must be assessed in combination with the stock’s
employee payment services; and regulatory compliance valuation. Please refer to our Valuation section on page 5 for further information.
services, such as new-hire reporting and garnishment
processing. It also provides human resource outsourcing FACTOR SCORE
services, such as Paychex HR solutions comprising
payroll, employer compliance, human resource and Growth out of 5 stars 3.5
employee benefits administration, risk management Measures the growth of both the company's income statement and weak strong
outsourcing, and the on-site availability of a cash flow. On this factor, PAYX has a growth score better than 60% of
professionally trained human resource representative; the stocks we rate.
and retirement services administration, including plan
implementation, ongoing compliance with government
regulations, employee and employer reporting,
Total Return out of 5 stars 3.5
participant and employer online access, electronic funds Measures the historical price movement of the stock. The stock weak strong
transfer, and other administrative services. In addition, performance of this company has beaten 60% of the companies we
the company offers insurance services for property and cover.
casualty coverage, such as workers' compensation,
business-owner policies, commercial auto, and health Efficiency out of 5 stars 5.0
and benefits coverage, including health, dental, vision, Measures the strength and historic growth of a company's return on weak strong
and life; cloud-based human resource administration invested capital. The company has generated more income per dollar of
software products for employee benefits management capital than 90% of the companies we review.
and administration, and time and attendance solutions;
and other human resource services and products, such as
employee handbooks, management manuals, and
Price volatility out of 5 stars 4.0
personnel and required regulatory forms. Further, it Measures the volatility of the company's stock price historically. The weak strong
provides various accounting and financial services to stock is less volatile than 70% of the stocks we monitor.
small- to medium-sized businesses, which include
purchasing of accounts receivable as a means of Solvency out of 5 stars 5.0
providing funding to clients in the temporary staffing Measures the solvency of the company based on several ratios. The weak strong
industry; a cloud-based accounting service; payment company is more solvent than 90% of the companies we analyze.
processing services; payment distribution services; and a
small-business loan resource center. Paychex, Inc. Income out of 5 stars 4.5
markets its products and services through direct sales
Measures dividend yield and payouts to shareholders. The company's weak strong
force. The company was founded in 1979 and is
dividend is higher than 80% of the companies we track.
headquartered in Rochester, New York.
PAYCHEX INC THESTREET RATINGS RESEARCH METHODOLOGY

911 Panorama Trail South
Rochester, NY 14625 TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both
USA price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to
Phone: 585-385-6666 perform against a general benchmark of the equities market and interest rates. While our model is
http://www.paychex.com quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include
expected equities market returns, future interest rates, implied industry outlook and forecasted company
earnings. Objective elements include volatility of past operating revenues, financial strength, and company
cash flows.
Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown
as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of
acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings
growth; and the financial strength of the underlying company as compared to its stock's valuation as
compared to projected earnings growth; and the financial strength of the underlying company as compared
to its stock's performance. These and many more derived observations are then combined, ranked, weighted,
and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of
selecting stocks.
July 16, 2017
NASDAQ: PAYX
PAYCHEX INC
$1.84 3.21% 0.96 $20.6 Billion $52.78-$63.03 $57.20
Consensus EPS Estimates² ($) FINANCIAL ANALYSIS

IBES consensus estimates are provided by Thomson Financial PAYCHEX INC's gross profit margin for the fourth quarter of its fiscal year 2016 is essentially unchanged when
compared to the same period a year ago. The company managed to grow both sales and net income at a
faster pace than the average competitor in its industry this quarter as compared to the same quarter a year
ago. PAYCHEX INC has very weak liquidity. Currently, the Quick Ratio is 0.18 which clearly shows a lack of
ability to cover short-term cash needs. The company's liquidity has increased from the same period last year.
At the same time, stockholders' equity ("net worth") has remained virtually unchanged only increasing by
2.28% from the same quarter last year. The key liquidity measurements indicate that the company is in a
0.61 2.37 E 2.55 E position in which financial difficulties could develop in the near future.
Q1 FY17 2018(E) 2019(E)
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the
next 12-months. To learn more visit www.TheStreetRatings.com.
INCOME STATEMENT
Q4 FY16 Q4 FY15
Net Sales ($mil) 798.60 753.90
EBITDA ($mil) 335.10 306.30
EBIT ($mil) 298.90 276.30
Net Income ($mil) 195.30 178.10
BALANCE SHEET
Q4 FY16 Q4 FY15
Cash & Equiv. ($mil) 323.40 352.10
Total Assets ($mil) 6,833.70 6,440.80
Total Debt ($mil) 0.00 0.00
Equity ($mil) 1,955.30 1,911.70
PROFITABILITY
Q4 FY16 Q4 FY15
Gross Profit Margin 75.56% 74.76%
EBITDA Margin 41.96% 40.62%
Operating Margin 37.43% 36.65%
Sales Turnover 0.46 0.46
Return on Assets 11.95% 11.75%
Return on Equity 41.79% 39.58%
DEBT
Q4 FY16 Q4 FY15
Current Ratio 1.12 1.11
Debt/Capital 0.00 0.00
Interest Expense NA 0.40
Interest Coverage NA 690.75
SHARE DATA
Q4 FY16 Q4 FY15
Shares outstanding (mil) 359 360
Div / share 0.46 0.42
EPS 0.54 0.49
Book value / share 5.44 5.30
Institutional Own % NA NA
Avg Daily Volume 2,023,677 1,926,256
2 Sum of quarterly figures may not match annual estimates due to
use of median consensus estimates.
July 16, 2017
NASDAQ: PAYX
PAYCHEX INC
$1.84 3.21% 0.96 $20.6 Billion $52.78-$63.03 $57.20
RATINGS HISTORY VALUATION

Our rating for PAYCHEX INC has not changed since BUY. PAYCHEX INC's P/E ratio indicates a discount compared to an average of 32.58 for the IT Services
8/21/2009. As of 7/13/2017, the stock was trading at industry and a value on par with the S&P 500 average of 24.41. Conducting a second comparison, its
a price of $57.20 which is 9.3% below its 52-week price-to-book ratio of 10.51 indicates a significant premium versus the S&P 500 average of 3.04 and a premium
high of $63.03 and 8.4% above its 52-week low of versus the industry average of 9.98. The price-to-sales ratio is well above both the S&P 500 average and the
$52.78. industry average, indicating a premium.
2 Year Chart
$70 Price/Earnings 1 2 3 4 5 Price/CashFlow 1 2 3 4 5
BUY: $48.39
premium discount premium discount

PAYX 25.31 Peers 32.58 PAYX 21.41 Peers 22.09
$60 • Discount. A lower P/E ratio than its peers can • Average. The P/CF ratio, a stock’s price divided by
signify a less expensive stock or lower growth the company's cash flow from operations, is useful
$50 expectations. for comparing companies with different capital
• PAYX is trading at a discount to its peers. requirements or financing structures.
• PAYX is trading at a valuation on par to its peers.
2015 2016
Price/Projected Earnings 1 2 3 4 5 Price to Earnings/Growth 1 2 3 4 5
premium discount premium discount
PAYX 22.43 Peers 22.62 PAYX 4.75 Peers 1.78
MOST RECENT RATINGS CHANGES
• Average. An average price-to-projected earnings • Premium. The PEG ratio is the stock’s P/E divided by
Date Price Action From To ratio can signify an industry neutral stock price and the consensus estimate of long-term earnings
7/13/15 $48.39 No Change Buy Buy average future growth expectations. growth. Faster growth can justify higher price
Price reflects the closing price as of the date listed, if available • PAYX is trading at a valuation on par with its peers. multiples.
• PAYX trades at a significant premium to its peers.
RATINGS DEFINITIONS & Price/Book 1 2 3 4 5 Earnings Growth 1 2 3 4 5
DISTRIBUTION OF THESTREET RATINGS premium discount lower higher
(as of 7/13/2017) PAYX 10.51 Peers 9.98 PAYX 8.13 Peers -0.89
• Average. A lower price-to-book ratio makes a stock • Higher. Elevated earnings growth rates can lead to
43.81% Buy - We believe that this stock has the more attractive to investors seeking stocks with capital appreciation and justify higher
opportunity to appreciate and produce a total return of lower market values per dollar of equity on the price-to-earnings ratios.
more than 10% over the next 12 months. balance sheet. • PAYX is expected to have an earnings growth rate
• PAYX is trading at a valuation on par with its peers. that significantly exceeds its peers.
30.69% Hold - We do not believe this stock offers
conclusive evidence to warrant the purchase or sale of Price/Sales 1 2 3 4 5 Sales Growth 1 2 3 4 5
shares at this time and that its likelihood of positive total premium discount lower higher
return is roughly in balance with the risk of loss. PAYX 6.52 Peers 5.81 PAYX 6.75 Peers 11.47
• Premium. In the absence of P/E and P/B multiples, • Lower. A sales growth rate that trails the industry
25.50% Sell - We believe that this stock is likely to the price-to-sales ratio can display the value implies that a company is losing market share.
decline by more than 10% over the next 12 months, with investors are placing on each dollar of sales. • PAYX significantly trails its peers on the basis of
the risk involved too great to compensate for any • PAYX is trading at a premium to its industry on this sales growth
possible returns. measurement.
DISCLAIMER:
TheStreet Ratings
14 Wall Street, 15th Floor The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but
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www.thestreet.com via the COMPUSTAT® Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as
other third-party data providers.
Research Contact: 212-321-5381
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other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a
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BUY BUY BUY BUY: Paychex Inc

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July 16, 2017

25.31 32.58 24.41 HIGHLIGHTS

PEER GROUP ANALYSIS INDUSTRY ANALYSIS

20% 60% that are costly to develop and deliver internally.

PEER GROUP: IT Services

Recent Market Price/ Net Sales Net Income

COMPANY DESCRIPTION STOCK-AT-A-GLANCE

PAYCHEX INC THESTREET RATINGS RESEARCH METHODOLOGY

Consensus EPS Estimates² ($) FINANCIAL ANALYSIS

RATINGS HISTORY VALUATION

premium discount premium discount

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