Paychex, Inc. (PAYX)

Seems I was a little premature on the underperform for this stock (shoulda known that payroll companies tend to do better at the bottom of a rate contraction cycle). I did a FCFE model on the stock and checked it with a few other fools and we agree I was in the ballpark at around $30.50. Also compared several metrics to closest competitor ADP.

PAYX ADP
EV/Sales      5.89    2.55   
EV/EBITDA   13.4    11.4       
P/BV      10.5    4.59   
P/E      22.21    21.01
PEG      2.61    1.72   

Appears that ADP is genarally in a happier place fundamentally. Note however that PAYX does a better job of shoring up its EV/EBITDA ratio relative to its sales valuation figure which gives us the notion that PAYX is controlling costs well.

It seems like a lot of analysts are pointing out the fact that PAYX will thrive in a rising rate environment; while PAYX will surely benefit, the company says a .25bp shift in either direction should only impact EPS by $.01(in terms of revenues received on funds held for clients). The increase, though desireable, doesn't seem like it will have a material impact on the firms value until the fed increases rates several times, which is relatively unlikely to happen in the near term. Still, the markets reaction, should the Fed increase rates may drive the stock price up significantly...watch out for this.

Payx has a client base that is made up of smller companies than that of rival ADP and I feel like they will be more susceptible to current economic instability.

The bottom line is that PAYX is a growing and efficient company but it is directly affected by the growth of the job market and the ability of small business' to grow, obtain financing and hire more employees. In the current environment and with what appears to be a moderately overvalued stock price. I'm going with the red thumb for the short term but think PAYX is a solid bet long term at a better entry point somewhere below $30/sh.