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Human capital management (HCM) stocks may be catching investors' attention as fears of an escalating trade war and hotter-than-expected Personal Consumption Expenditures (PCE) data led to a sharp decline among the broader indexes on Friday.
That said, the necessity for HCM solution providers is intriguing, especially those that offer payroll services as they should be relatively unaffected by tariffs. Optimistically, the unemployment rate has remained near pre-pandemic levels at around 4%, with the need to fulfill payroll and other workforce obligations leading to consistent demand for companies like Paychex PAYX and Automatic Data Processing ADP.
Image Source: Federal Reserve Economic Data
Paychex CEO Comments on the Labor Market
Making an appearance on CNBC’s Mad Money this week, Paychex CEO John Gibson stated there are no signs of recession in the company’s data with the underlying labor market remaining fundamentally healthy despite market uncertainty. Indicative of such, moderate job and wage growth among small businesses helped Paychex edge top and bottom line expectations for its fiscal third quarter on Wednesday.
Paychex & ADP’s Steady Growth
Notably, Paychex’s total sales are now expected to rise 4% in fiscal 2025 and are projected to increase another 5% in FY26 to $5.81 billion. Annual earnings are currently slated to increase 6% this year and are projected to rise another 6% in FY26 to $5.30 per share.
Image Source: Zacks Investment Research
Pivoting to ADP which is one of the leaders in cloud-based HCM including payroll and talent management, its top line is forecasted to expand by 6% in FY25 and FY26 with projections edging north of $21 billion. More impressive, ADP’s EPS is projected to be up 8% in FY25 and is forecasted to spike another 9% next year to $10.82.
Image Source: Zacks Investment Research
Recent Stock Performance
Correlating with the notion that investors may want to use payroll stocks as a defensive hedge is that PAYX and ADP shares are up +7% and +3% in 2025 respectively. These modest gains have been comforting considering the broader indexes have flirted with correction territory as the S&P 500 has fallen 4% year to date with the Nasdaq falling 10%.
Image Source: Zacks Investment Research
Cintas is another HCM Provider to Consider
While Cintas CTA doesn’t provide payroll services, investor interest has shifted to the company’s growth narrative as a human capital provider. With its stock up +11% YTD, Cintas has seen a consistent demand for its specialized business services which include corporate identity uniform programs, restroom supplies, and first aid/safety products for diversified businesses throughout North America as well as Europe, Asia, and Latin America.