Guggenheim analyst Jacob Smith initiates coverage on Paychex (NASDAQ: PAYX) with a Neutral rating.

The analyst commented, "We are initiating coverage of Paychex, Inc. (PAYX) with a Neutral rating and no price target. Paychex has underperformed the S&P 500 by 16% YTD, driven by the narrative that AI will replace workers and directly impact seat-based software vendors. We acknowledge this threat but believe Paychex is better positioned than most HCM peers, given structural dynamics that create natural barriers to disruption. Payroll and compliance functions demand deterministic outcomes where AI's probabilistic outputs fall short, over 70% of Paychex's clients' employees work in blue- and gray-collar industries that are harder for AI to displace, and its fixed-fee revenue model reduces exposure to headcount fluctuations vs. pure PEPM peers. That said, we are more cautious about near-term fundamentals than long-term AI risk. Based on our estimated ARR model, the low end of FY26 Management Solutions guidance ($4,880M, 20% y/y) requires 70% New ARR growth in both F3Q26 and F4Q26, which we don't view as de-risked. Consensus has already moved below FY26 guidance (19.8% vs. 20-22%), so a modest miss may not surprise investors, but we don't view this as a favorable setup. On Paycor, cost synergy execution has been strong ($100M in FY26) and retention has been exceeding plan. However, our extensive channel checks paint a more complicated picture than PAYX suggests, with broker partners far more reluctant to refer to Paycor given Paychex has competing offerings to their core book of business. Our conviction has strengthened, given reported brand deterioration and talent departures from Paycor, according to partners. The challenging F2H26 setup and differentiated broker insights keep us on the sidelines until we see stabilization in deal sizes and attach rates. PAYX trades at 5.7x EV/NTM recurring revenue versus 3.4x for HCM peers, which can likely be justified by stability of earnings and a mature margin profile but leaves limited room for error given the execution risks outlined above."

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Shares of Paychex closed at $92.43 yesterday.