Paycom (PAYC) Up 22.2% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Paycom Software (PAYC). Shares have added about 22.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Paycom due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Paycom Software reported impressive second-quarter 2018 results, surpassing the Zacks Consensus Estimate on both counts. The top and the bottom lines also came ahead of the guided range.
The company’s non-GAAP earnings per share came in at 59 cents per share, which beat the Zacks Consensus Estimate of 49 cents. Also, reported earnings increased from the adjusted figure of 26 cents in the year-ago quarter.
Paycom Software reported revenues of $128.8 million, which increased 31% from the year-ago quarter. Revenues also surpassed the Zacks Consensus Estimate of $124 million.
The year-over-over increase can be attributed to new business wins and product development initiatives. Robust adoption of enhanced HCM software solutions is a key driver.
Moreover, revenues were impacted positively by a 31% year-over-year increase in recurring revenues, which comprised around 98% of total revenues.
Management believes that Paycom’s mobile app, which meets all the functionality offered by employee self-service desktop application, positions it well for continued growth.
The company also introduced various enhancements to its overall product offering as part of its monthly updates in the second quarter that were rolled out to its entire client base.
Adjusted gross profit increased 32.7% from the year-ago period to $108.3 million. The company’s adjusted gross margin expanded 110 basis points (bps) on a year-over-year basis to 84.1%, primarily due to a higher revenue base.
As a percentage of revenues, total adjusted administration expenses and sales and marketing expenses of 47.9% and 23.4% declined 290 and 330 bps, respectively. Paycom Software’s adjusted EBITDA increased 46.2% year over year to $53.5 million.
Balance Sheet & Cash Flow
Paycom Software exited the second quarter with cash and cash equivalents of $54.6 million compared with $68.1 million in the previous quarter.
The company’s balance sheet comprises long-term debt of $33.5 million compared with $35.3 million in the previous quarter.
Net cash provided by operating activities in the first six months of 2018 was $100.4 million.
The company repurchased more than 400k shares in the quarter.
For third-quarter 2018, Paycom Software expects revenues in the range of $129-$131 million. Adjusted EBITDA is expected to be in the range of $45.5-$47.5 million.
Gross margin is anticipated to be under pressure due to the timing of new hires.
Paycom Software raised its guidance for fiscal 2018. The company now anticipates revenues in the range of $554-$556 million, up from the previous expectation of $545-$547 million. Adjusted EBITDA is expected to be in the range of $231-$233 million, up from previous guidance of $220-$222 million.
The company will be ramping up investments in sales and marketing initiatives as well as in research and development in the second half of the year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted 14.67% due to these changes.
Currently, Paycom has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren’t focused on one strategy, this score is the one you should be interested in.
The company’s stock is suitable solely for growth based on our style scores.
Paycom has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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