Chicago, IL – January 27, 2022 – Zacks Equity Research shares Paychex PAYX as the Bull of the Day and Shopify SHOP asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Baker Hughes Company BKR, Whiting Petroleum Corp. WLL and Continental Resources, Inc. CLR.
Here is a synopsis of all five stocks:
Bull of the Day:
Paychexis a leading provider of integrated human capital management solutions for HR, payroll, employee benefits and retirement plans, and business insurance services.
Through its HCM software-as-a-service platform, Paychex Flex, provides an integrated product suite that covers the employee life cycle from recruiting and hiring to retirement.
Paychex, with a market cap north of $42 billion and sales projected to grow to $4.5 billion this fiscal year -- a 10.7% advance -- was founded in 1971 with an insight by B. Thomas Golisano. From the company website...
"Payroll is complex for small and medium-sized businesses and Paychex can make it simple. We were the original disruptors, starting small but thinking big."
Golisano started the company with $3,000 and a credit card. He served as its president and Chief Executive Officer from 1971 to October 2004 and was the Chairman of Paychex until CEO Marty Mucci recently took that role.
**700,000+ clients in the U.S. and Northern Europe
**Pays 1 in 12 U.S. private sector employees
**Largest HR company for small to medium-sized businesses
Serving more than 90,000 401(k) plans, Paychex has been recognized as the largest 401(k) recordkeeper in the U.S. by PLANSPONSOR magazine for the tenth consecutive year.
Paychex reported strong Q2 fiscal 2022 (ends May) results in late December. Adjusted earnings of 91 cents per share beat the Zacks Consensus Estimate by 15.2% and increased 25% on a year-over-year basis. Total revenues of $1.11 billion beat the consensus mark by 4.6% and increased 13% year over year.
Revenues from Management Solutions increased 14% year over year to $832 million. The segment benefited from higher checks per payroll for HCM services and net gain in worksite employees for HR solutions, higher revenue per client resulting from improved price realization, improved market conditions on asset-based revenues for retirement services, and increase in funding for temporary staffing clients.
Professional employer organization ("PEO") and Insurance Solutions' revenues were $262.4 million, up 11% from the year-ago quarter. The uptick was due to an increase in the number of average worksite employees, impact of an increase in average wages per worksite employee, higher revenues on state unemployment insurance, plus a rise in PEO health insurance revenues.
For fiscal 2022, total revenues are now expected to register 10-11% growth compared with the prior expectation of 8%. Adjusted earnings per share are now expected to register 18-20% growth compared with the prior expectation of 12-14%.
Management Solutions' revenues are now expected to grow 10-11% compared with the prior expectation of 8%.
Adjusted operating margin is expected to be almost 39-40% compared with the prior expectation of 38-39%. Adjusted EBITDA margin is now expected to be nearly 44% compared with the prior expectation of 43%.
One of the most bullish calls after the quarter was from Credit Suisse, who raised their price target on PAYX shares to $165 from $135.
Analyst Kevin McVeigh reiterated his bullish views on the stock as improving fundamentals plus product offerings fuel record-high retention and likely structurally higher margin levels. Importantly, Paychex boosted its full year 2022 outlook for the second time in as many quarters.
And more recently during the stock market correction, Cowen & Co. issued an analyst note saying that PAYX was the "right stock for right now."
Cowen analyst Bryan Bergin upgraded Paychex to Outperform from Market Perform with a price target of $145, up from $130. The analyst sees a "confluence of company-specific and market-driven factors" that make Paychex "an attractive compounder" in the current market.
Paychex has strengthened fundamentals and a detachment from growth factor pressure, Bergin told investors in a mid-January research note. The analyst forecasts "healthy upside" to consensus estimates thru fiscal 2024, supported by successful product development, sales momentum and a strong financial profile.
After the company report, Jim Cramer asked Marty Mucci "How are you guys doing it?"
Mucci acknowledged the tailwinds of economic and job growth as naturally adding to their business. But he also praised his sales teams for providing more solutions to more clients.
And, not surprisingly, he beamed about near record retention of clients. That makes sense if they are serving small and medium-sized businesses well because an HR/HCM/Benefits system should feel like home. Plus, they are doing it well by offering the best technology and automations to streamline HCM functions.
Cramer also asked about why Retirement is such a growth area and Mucci explained that just as people have higher standards for their job search in terms of benefits, they also seek the best services and tools at the end of their tenure. If Paychex can be the already-trusted custodian for that smooth transition, they keep those retired workers in the family.
Finally, we're coming into another season for workers where automation can help prevent headaches and Paychex has this reminder posted on the website: "Jan. 31 is the deadline to furnish W-2s to employees. Administrators and employees also can access through self-service."
During this pullback, keep your eye on spots to buy PAYX under Monday's low near $115 down to the Sep 30 gap up from $108.
Bear of the Day:
Shopify has been hanging out in the netherworld of the Zacks Rank lately because 2021 earnings estimates took an 8.5% dive from about $7.00 to $6.40 in Q4.
We won't have the final report card for FY'21 until mid-February, but what's interesting to me as a Shopify fan who wants to buy the stock again near $800 is that 2022 EPS estimates are holding steady around $6.92.
The disclaimer here is that this represents only 8.3% earnings growth after a spectacular 2021 where they put up +60%.
But this explains why some institutional investors have been selling the stock. You can't support a 100+ times P/E multiple on flattish growth.
The glass half-full view is on the topline where the projected consensus surge over $6 billion will represent 33% growth.
At a market cap of around $110 billion now, that means SHOP is more affordable than it has been in a while on a price-to-sales metric.
Even though the sales growth slows from 2021's blistering +56%, we are trading under 20X again.
That's got to bring out some big fund buyers for this premier e-commerce play soon.
And to put their love for this juggernaut in perspective, recall the company's Q3 earnings announcement on October 28. After reporting a 37% EPS miss, the stock proceeded to march to all-time highs above $1750.
SHOP is still a topline growth story as they expand and create more alliances across e-comm.
The forced selling should be over soon and I hope to be a proud owner of some shares with a $700 handle on them.
One more note on the pessimism: This week, KeyBanc analyst Josh Beck lowered the firm's price target on Shopify to $1,250 from $1,750 to better reflect market conditions. This followed word last week that SHOP was retrenching on its strategy to have lots of warehouse space across the country to compete with Amazon.
Business Insider reported last Friday that Shopify was reducing contracts with U.S. warehouses, marking a shift in its effort to challenge Amazon's massive fulfillment machine.
Again, I think the worst is nearly discounted and SHOP will be a great stock to scoop under $800.
Disclosure: No positions in SHOP or AMZN at this time.
In its weekly release, Baker Hughes Company reported an increase in U.S. rig count as compared with the prior week. The rotary rig count, issued by Baker Hughes, usually gets published in major newspapers and trade publications.
Baker Hughes’ data, issued at the end of every week since 1944, helps energy service providers to gauge the overall business environment of the oil and gas industry. The number of active rigs compared with the prior-week figure indicates the demand trajectory for Baker Hughes’ oilfield services from exploration and production companies.
Total US Rig Count Increases: The count of rigs engaged in the exploration and production of oil and natural gas in the United States was 604 for the week through Jan 21, higher than the prior-week count of 601. Thus, the tally has increased in three straight weeks. The current national rig count is also higher than the year-ago level of 378.
The number of onshore rigs for the week ended Jan 21 totaled 584, higher than the prior-week count of 581. In offshore resources, 18 rigs were operating, in line with the prior-week count.
US Oil Rig Count Declines: Oil rig count was 491 for the week ended Jan 21, lower than the prior-week figure of 492. The current number of oil rigs — far from the peak of 1,609 attained in October 2014 — has, however, increased from the year-ago figure of 289.
Natural Gas Rig Count Rises in US: Natural gas rig count of 113 was higher than the prior-week figure of 109. The count of rigs exploring the commodity is higher than the prior-year week’s tally of 88. Per the latest report, the number of natural gas-directed rigs is 93% lower than the all-time high of 1,606 recorded in 2008.
Rig Count by Type: The number of vertical drilling rigs totaled 23 units, lower than the prior-week count of 25. Horizontal/directional rig count (encompassing new drilling technology with the ability to drill and extract gas from dense rock formations, also known as shale formations) of 581, however, compared favorably with the prior-week level of 576.
Gulf of Mexico (GoM) Rig Count Flat: GoM rig count was 18 units, all being oil-directed. The count was flat with the prior-week number.
Permian — the most prolific basin in the United States — recorded a weekly oil rig tally of 292, lower than the prior-week count of 293. The basin's oil drilling rig count increased in seven of the prior 10 weeks.
The West Texas Intermediate crude price has improved massively in the past year. With coronavirus vaccines being rolled out on a massive scale and announcements that booster doses and antiviral pills are effective against Omicron, the economy will possibly overcome the recent spike in coronavirus cases.
This is brightening up the fuel demand outlook and hence will pave the way for rig additions despite a slowdown in drilling activities as upstream players mainly focus on stockholder returns rather than boosting output.
Meanwhile, investors may keep a close eye on energy stocks like Whiting Petroleum Corp. and Continental Resources, Inc.. The companies are expected to benefit from the current healthy oil price scenario.
Whiting Petroleum is a leading upstream energy company and the top producer of crude oil in North Dakota. With oil prices improving at a healthy pace, Whiting Petroleum is expected to continue generating handsome cash flows while maintaining a healthy balance sheet.
Headquartered in Denver, CO, Whiting Petroleum has guided higher its 2021 total oil equivalent daily production, thereby securing higher cashflows.
Continental Resources is also a leading upstream energy company with proven reserves in North Dakota and Oklahoma. The oil inventories of Continental Resources are among the best in the industry.
Headquartered in Oklahoma City, Continental Resources has lower debt exposure as compared to composite stocks belonging to the industry.
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Paychex, Inc. (PAYX) : Free Stock Analysis Report
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