Investing.com -- TD Cowen has identified selective opportunities in the Human Capital Management sector as the group faces recent pressure from a reversion trade to other software areas. The HCM group had outperformed the IGV index over the second quarter due to stabilizing employment data, increasing yields, and a stable demand environment. TD Cowen maintains that the backdrop remains supportive for the group to at least meet expectations, though the firm does not anticipate major surprises this earnings season. The analysts are selective on positioning for earnings setups as moderate results are likely to yield muted reactions while AI concerns persist.

1. Paycom Software (PAYC) - Buy, $286 price target

TD Cowen holds its most favorable view on Paycom's third-quarter setup, citing reasonable estimate levels that are likely to be beaten and raised. The firm anticipates a healthy third-quarter beat and expects the company to raise its ex-float growth and margin guide midpoints by 50 basis points each. Positive takeaways from TD Cowen's 2026 HCM Survey regarding near-term new client sales outlook support the bullish stance. Valuation at 15x price-to-earnings ratio (calendar year 2027 estimate) presents attractive risk-reward, according to the firm. Short interest has declined to 6.9% from 8.0%, with days to cover at 3.4 days from 4.1. TD Cowen's revenue estimate is 1.7% above consensus for the third quarter, with adjusted EBITDA 5% above.

2. Paylocity (PCTY) - Buy, $178 price target

TD Cowen has a neutral to positive view on Paylocity's first-quarter setup, anticipating a clean beat and raise of 60 basis points to ex-float growth and 20 basis points to margin midpoints. The moderately positive outlook is driven by expectations of a moderate quarter against a low bar following ongoing underperformance in shares since early August. Short interest stands at 7.1%, with days to cover at 4.2 days. Valuation at 17x enterprise value-to-free cash flow (calendar year 2027 estimate) appears undemanding. Organic ex-float growth has accelerated slightly over the past two quarters to approximately 12.0%. TD Cowen's first-quarter revenue estimate is 0.6% above consensus, with adjusted EBITDA 3.8% above.

3. Asure Software (ASUR) - Buy, $11 price target

TD Cowen maintains a neutral to positive view on Asure's third-quarter setup, expecting results modestly above Street estimates and an affirmation of fiscal 2026 revenue guidance on an organic basis. The firm views this, combined with moderate short squeeze risk (days to cover at 9) and a low bar following recent underperformance in shares, as positioning for a slight relief reaction. TD Cowen's third-quarter revenue estimate is 0.6% above consensus.

4. Automatic Data Processing (ADP) - Hold, $265 price target

TD Cowen has a neutral view on ADP's first-quarter setup, expecting a modest beat and either an affirmation or slight raise to fiscal 2027 guides. While buy-side expectations seem reasonable, the firm sees a lack of positive catalysts, with float and extended strategy upside appearing baked into investor expectations. Short interest has declined to 2.8% from 3.6%. TD Cowen's first-quarter revenue estimate is 0.3% above consensus.

5. TriNet Group (TNET) - Hold, $66 price target

TD Cowen holds a neutral view on TriNet's second-quarter setup, anticipating a healthy beat on adjusted earnings per share with revenue in line to slightly below, and a modest raise to adjusted EPS guidance driven by insurance cost ratio. Short interest has increased to 4.1% from 3.2%, with days to cover at 5.8 days. TD Cowen's third-quarter revenue estimate is 0.3% below consensus but adjusted EPS is 28% above at $0.78.

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