One-glance verdict
Undervalued
$140.63 our estimate vs market $115.37
Wall Street consensus: $118.60 (-15.7% lower than our fair-value estimate)
18% below our estimate, below the bear case
Fundamentals snapshot
Paychex, Inc.
PAYX · NMS · Technology · Software - Application
Current price
$115.37
52-week range
$85.45 - $135.97
Market cap
$41.07B
Balance sheet
Watch
9.32x Adequate
Net debt $3.49B. Interest coverage shows how many times profit covers the interest bill.
What stands out
3 Rewards
1 Risk
3 rewards · 1 risks
- Reward Revenue grew 16.9% last year.
- Reward Free cash flow was positive in 10/10 years.
- Reward Dividend yield is 4.1% with 39-year payout history.
- Risk Operating margin compressed from 40.6% to 38.3% over 3 years.
What this company does
Paychex, Inc.
Paychex acts as the human resources department for small and medium-sized businesses, handling essential tasks like running payroll, managing employee benefits, and providing insurance. The company makes money primarily from recurring revenue (predictable income from regular client subscription fees), which tends to be stable because these HR services are critical and businesses rarely switch providers.
How the company got here
Paychex was started in 1971 by Tom Golisano with just $3,000. He saw that small businesses, like his father's heating company, struggled with the complex task of paying their employees (known as payroll) but couldn't afford the existing services, which were designed for large companies. Golisano's idea was to offer an affordable payroll service where a small business owner could simply call in their employees' hours. The company grew steadily and became a public company in 1983, which means its shares are traded on the stock market. Over the years, Paychex expanded by acquiring other companies and adding more services beyond just payroll, like human resources (HR) support, employee benefits, and insurance.
What it actually does
Paychex provides a suite of online tools and services to help small and medium-sized businesses manage their workforce. Think of it as an outsourced HR department that handles the essential but time-consuming paperwork involved in having employees. Their main service is processing payroll, which includes calculating paychecks, handling tax withholdings, and making sure everyone gets paid correctly and on time. Beyond just paychecks, they also help businesses offer and manage things like 401(k) retirement plans, health insurance, and other employee benefits.
Management Solutions
This is the company's largest and core business, making up the vast majority of its revenue. It bundles together payroll processing with a host of other related services that businesses need to manage their employees. This includes software and support for human resources (HR), help with staying compliant with government regulations, and services for administering retirement plans. Customers pay a recurring fee for these integrated services, which are delivered through their main software platform, Paychex Flex.
PEO and Insurance Solutions
This is a smaller but significant part of the company that offers a more comprehensive level of outsourcing. PEO stands for Professional Employer Organization; under this model, a business's employees are co-employed by Paychex, which allows smaller companies to access better and cheaper employee benefits, like health insurance, by being part of a much larger group. This segment also includes selling various business insurance policies, such as workers' compensation and property and casualty coverage. Essentially, businesses pay Paychex to take on the full administrative burden of being an employer.
Interest on Funds Held for Clients
This is the smallest slice of the business and works a bit like how a bank makes money. When Paychex collects money from its clients to pay their employees' payroll and taxes, there's a short period before that money is actually sent out. During this time, Paychex invests the funds in very safe, short-term securities and earns interest on that money. While it's a small portion of total revenue, it provides an additional stream of income for the company.
What management is betting on now
Paychex is heavily focused on integrating technology, especially artificial intelligence (AI), into its services to make them smarter and more efficient. The goal is to automate more routine tasks and provide business owners with better data to predict things like when an employee might leave. They are also focused on expanding their higher-value services, like PEO and HR advisory, as businesses face increasingly complex labor and compliance (following the rules) challenges. A key part of the strategy is to sell more of these additional services to their large existing base of payroll customers, which increases the value of each client relationship.
Price history
How the share price has moved
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Earnings history
Last 8 quarters — what happened
Click any quarter to read the call summary and what the numbers say.
FY2025 Q1
$510.50M
FY2025 Q2
$248.00M
FY2025 Q3
$667.30M
FY2025 Q4
$283.30M
FY2026 Q1
$662.50M
FY2026 Q2
$382.80M
FY2026 Q3
$761.50M
FY2026 Q4
$515.00M
Revenue
$1.61B
Net income
$420.60M
Diluted EPS
1.17
Operating cash flow
$580.90M
Free cash flow
$515.00M
Fetching…
Sources
Revenue
$1.81B
Net income
$560.30M
Diluted EPS
1.56
Operating cash flow
$812.50M
Free cash flow
$761.50M
Fetching…
Sources
Revenue
$1.56B
Net income
$395.40M
Diluted EPS
1.10
Operating cash flow
$444.90M
Free cash flow
$382.80M
Fetching…
Sources
Revenue
$1.54B
Net income
$383.80M
Diluted EPS
1.06
Operating cash flow
$718.40M
Free cash flow
$662.50M
Fetching…
Sources
Revenue
$1.43B
Net income
$297.20M
Diluted EPS
0.83
Operating cash flow
$343.80M
Free cash flow
$283.30M
Fetching…
Sources
Revenue
$1.51B
Net income
$519.30M
Diluted EPS
1.43
Operating cash flow
$716.00M
Free cash flow
$667.30M
Fetching…
Sources
Revenue
$1.32B
Net income
$413.40M
Diluted EPS
1.14
Operating cash flow
$295.00M
Free cash flow
$248.00M
Fetching…
Sources
Revenue
$1.32B
Net income
$427.40M
Diluted EPS
1.18
Operating cash flow
$546.10M
Free cash flow
$510.50M
Fetching…
Sources
Is it cheap or expensive?
Fair value $140.63 vs current price $115.37
Wall Street consensus is the average analyst price target: $118.60 (-15.7% lower than our fair-value estimate).
Our most-likely fair value is $140.63 a share — about 21.9% above today's price of $115.37, so the stock currently looks cheap (undervalued).
Is it drowning in debt?
Watch
Net debt $3.5B. Interest coverage 9.3x.
Net debt
$3.49B
Interest coverage
9.32x
Paychex, Inc.'s profit covers its interest bill about 9.3 times over.
Watch
Worse cushion
Baseline
Better cushion
PAYX
BASELINE
Paychex, Inc.
Total debt $4.63B Interest coverage 9.32x This is the baseline the peer rows are being compared against.
Total debt $5.51B Interest coverage 12.58x +35% vs PAYX Carries about 1.4x more debt cushion than PAYX.
Total debt $3.77B Interest coverage 8.98x -4% vs PAYX Has roughly the same debt cushion as PAYX.
Total debt $8.42B Interest coverage 24.13x +159% vs PAYX Carries about 2.6x more debt cushion than PAYX.
Total debt $982.80M Interest coverage 166.82x +1,691% vs PAYX Carries about 17.9x more debt cushion than PAYX.
What you should know
The case for and against PAYX
3 Rewards
1 Risk
Rewards
-
Revenue grew 16.9% last year.
-
Free cash flow was positive in 10/10 years.
-
Dividend yield is 4.1% with 39-year payout history.
Risks
-
Operating margin compressed from 40.6% to 38.3% over 3 years.
The numbers
All the key metrics, grouped by purpose
Tap any ? icon to learn what it means.
Valuation
How expensive the stock looks
P/E (TTM)
23.59x
Forward P/E
18.06x
P/B
10.98x
P/S
10.35x
EV/EBITDA
27.65x
PEG ratio
2.02x
Profitability
How much profit each dollar creates
Gross margin
67.2%
Operating margin
38.3%
Net margin
26.6%
ROE
—
ROA
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Health
Liquidity and balance-sheet strength
Debt / equity
1.24x
Current ratio
1.15x
Quick ratio
0.30x
Total debt
$4.63B
Total cash
$1.14B
Growth
How the business has been compounding
Revenue TTM
$6.51B
Revenue 5Y CAGR
9.0%
EPS TTM
4.89
EPS 5Y CAGR
4.4%
Cash flow
How much cash the business throws off
Operating CF TTM
$2.56B
Free CF TTM
$2.32B
FCF margin
35.7%
Dividend
Shareholder payout
Yield
4.1%
Payout ratio
90.6%
Last ex-div date
2026-07-28