Barclays Upgrades Paychex (PAYX) to Equalweight 'due to our belief that PEO will reaccelerate in 2024'

Barclays analyst Ramsey El-Assal upgraded Paychex (NASDAQ: PAYX) from Underweight to Equalweight, PT $126.00.

The analyst comments "We raised PAYX to Equal Weight from an Underweight rating due to our belief that PEO will reaccelerate in 2024. As detailed in our PEO deep dive also published today (see, PEO: Best is Yet to Come, 12/14/23), we believe PEO headwinds are more cyclical than structural in nature. But we also note that the PEO cycle is idiosyncratic, and does not necessarily align with broader employment/macroeconomic trends, making it difficult for investors to get a clear read. The three cyclical factors that we believe have impacted PEO recently include: 1) regulatory/stimulus-related impacts and pull-forwards, 2) significant (albeit waning) insurance price inflation, and 3) very recently--a loosening of the labor market that saw less urgency on the side off employers to offer comprehensive benefits to attract and retain workers. With PAYX trading 2-turns below its 5-yr forward P/E average (i.e., 26x vs. the 5yr average of 28x), we believe a potential rise in unemployment is somewhat priced in, and therefore expect to see more stability in the stock over the next 12-months (though macro volatility and a tougher rate environment keep us on the sidelines for now). For this reason, we have upgraded PAYX to Equal Weight and raised our PT to $126 (vs $107 prior). Our $126 PT is based on 26x our CY25E P/E of $5.16 (vs. 22x our CY24 EPS estimate of $4.87 prior) + DCF."

For an analyst ratings summary and ratings history on Paychex click here. For more ratings news on Paychex click here.

Shares of Paychex closed at $128.12 yesterday.

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