One-glance verdict
Undervalued
$226.62 our estimate vs market $118.04
Wall Street consensus: $114.57 (-49.4% lower than our fair-value estimate)
48% below our estimate, below the bear case
Fundamentals snapshot
Paychex, Inc.
PAYX · NMS · Technology · Software - Application
Current price
$118.04
52-week range
$85.45 - $127.98
Market cap
$42.02B
Balance sheet
Watch
9.32x Adequate
Net debt $3.69B. 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 1.4% last year.
- Reward Returns 47.1% on equity, ahead of 66% of its peers.
- Reward Free cash flow was positive in 10/10 years.
- Risk Operating margin compressed from 40.6% to 38.5% over 3 years.
What this company does
Paychex, Inc.
Paychex helps small and medium-sized businesses manage their employees, mostly by handling payroll and benefits. This means they get paid for a service that businesses always need, leading to steady income like recurring revenue (money that comes in regularly from customers). Because so many businesses rely on them, Paychex is important for keeping companies running smoothly.
How the company got here
Paychex was founded in 1971 by Tom Golisano with a vision to help small businesses manage their payroll. Initially, it was a small operation, but it grew steadily by focusing on providing reliable and accessible payroll services. A key turning point was the company's early adoption of technology to automate payroll processing, which allowed it to serve more clients efficiently. Over the decades, Paychex expanded its offerings beyond just payroll to include a comprehensive suite of human resources, benefits, and insurance solutions, transforming into a full-service human capital management provider.
What it actually does
Paychex provides essential services that help businesses, especially small and medium-sized ones, manage their employees. Think of it as a behind-the-scenes partner for companies that don't have large HR departments. They handle the complicated tasks of calculating paychecks, managing payroll taxes, offering employee benefits like health insurance and retirement plans, and even assisting with hiring and HR compliance. Essentially, Paychex allows business owners to focus on running their core operations while ensuring their employees are paid correctly and have access to necessary benefits.
Human Capital Management (HCM) Solutions
This is the largest part of Paychex's business, offering a wide range of services to manage the entire employee lifecycle. It includes everything from helping companies find and hire new employees (talent acquisition) to managing their payroll, administering benefits like health insurance and retirement plans, and ensuring compliance with labor laws. Businesses pay Paychex a fee, often based on the number of employees, to use these integrated technology and advisory services. This segment is the core of Paychex's revenue, representing the majority of its income.
Payroll and Tax Services
This segment focuses specifically on the critical task of processing payroll and handling all related tax obligations. Paychex calculates employee wages, deducts taxes, and ensures that the correct amount of tax is remitted to federal, state, and local authorities. They also generate reports for businesses to track payroll expenses. Clients pay for these services on a per-payroll run basis or as part of a larger HCM package. While closely related to HCM, this is a foundational service that Paychex has offered since its inception and remains a significant revenue driver.
Retirement and Benefits Solutions
Beyond payroll, Paychex helps businesses offer attractive benefits to their employees, which is crucial for attracting and retaining talent. This includes setting up and administering retirement savings plans, such as 401(k)s, and managing other employee benefits like health, dental, and vision insurance. They also offer insurance services, including workers' compensation and business liability coverage. Companies pay fees for the administration and management of these plans, which helps them provide competitive compensation packages without the administrative burden.
What management is betting on now
Paychex is focusing on enhancing its technology offerings to provide more sophisticated human capital management tools. This includes investing in data analytics to give businesses deeper insights into their workforce and improving their digital platforms for a seamless user experience. They are also expanding services related to employee well-being and financial wellness, recognizing these as key areas for employee retention. The strategy aims to deepen relationships with existing clients by offering more value and attract new businesses by showcasing a comprehensive, modern HR solution.
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 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
FY2027 Q1
$357.40M
Revenue
$1.63B
Net income
$429.70M
Diluted EPS
1.21
Operating cash flow
$413.50M
Free cash flow
$357.40M
Fetching…
Sources
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
Is it cheap or expensive?
Fair value $226.62 vs current price $118.04
Wall Street consensus is the average analyst price target: $114.57 (-49.4% lower than our fair-value estimate).
Our most-likely fair value is $226.62 a share — about 92.0% above today's price of $118.04, so the stock currently looks cheap (undervalued).
Is it drowning in debt?
Watch
Net debt $3.7B. Interest coverage 9.3x.
Net debt
$3.69B
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 $4.62B 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 1.4% last year.
-
Returns 47.1% on equity, ahead of 66% of its peers.
-
Free cash flow was positive in 10/10 years.
Risks
-
Operating margin compressed from 40.6% to 38.5% 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)
23.42x
Forward P/E
18.48x
P/B
11.34x
P/S
6.36x
EV/EBITDA
14.85x
PEG ratio
2.20x
Profitability
How much profit each dollar creates
Gross margin
74.4%
Operating margin
38.5%
Net margin
27.4%
ROE
47.1%
ROA
10.2%
Health
Liquidity and balance-sheet strength
Debt / equity
1.25x
Current ratio
1.28x
Quick ratio
0.52x
Total debt
$4.62B
Total cash
$934.20M
Growth
How the business has been compounding
Revenue TTM
$6.60B
Revenue 5Y CAGR
9.0%
EPS TTM
5.04
EPS 5Y CAGR
4.4%
Cash flow
How much cash the business throws off
Operating CF TTM
$2.25B
Free CF TTM
$2.32B
FCF margin
35.2%
Dividend
Shareholder payout
Yield
4.0%
Payout ratio
90.1%
Last ex-div date
2026-10-26