Paycom (PAYC) Down 4.6% Since Last Earnings Report: Can It Rebound?

It’s been about a month since Paycom Software’s (PAYC) last earnings report. Shares have lost about 4.6% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Paycom due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

Paycom’s first-quarter earnings and revenues beat estimates

Paycom announced better-than-expected first-quarter 2023 results.

The online payroll technology provider reported first-quarter non-GAAP earnings of $2.46 per share, beating the Zacks Consensus Estimate of $2.35. Financial results improved by 29.5% compared to the $1.90 per share recorded in the same quarter last year.

In the first quarter of 2023, Paycom reported revenue of $452 million, topping the consensus estimate of $444.2 million and improving 28% year-over-year. This year-over-year growth was primarily due to strong demand, new business wins and the adoption of new product offerings.

Quarter in detail

Paycom’s recurring revenue (representing 98.4% of total revenue) increased 27.6% to $444.4 million in the first quarter.

Adjusted gross profit increased 27% from the prior-year period to $388.8 million. However, adjusted gross margin declined 50 basis points (bps) year-over-year to 86.1%.

Paycom’s adjusted EBITDA increased 29.6% year over year to $220.5 million. Adjusted EBITDA margin increased 70 bps to 48.8%.

Balance sheet and cash flow

Paycom ended the first quarter with cash and cash equivalents of $505.6 million, compared to $400.7 million reported in the prior quarter. The company’s balance sheet included net long-term debt of $29 million, which remained consistently unchanged.

In the first quarter of 2023, PAYC generated operating cash flow of $146.1 million.

Increased guidance for FY23

Encouraged by better-than-expected first-quarter results, Paycom raised its full-year 2023 guidance. The company now forecasts revenue of $1.713 billion to $1.715 billion, up from a prior range of $1.700 billion to $1.702 billion. The adjusted EBITDA forecast range was raised to $717-719 million from the previously expected range of $700-702 million.

For the second quarter of 2023, Paycom forecasts revenue and adjusted EBITDA in the ranges of $397 million to $399 million and $152 million to $154 million, respectively.

New shareholder return policy

Concurrent with the announcement of its first-quarter financial results, Paycom revealed that its board of directors had approved a cash dividend, marking the company’s first-ever dividend policy. PAYC intends to pay a quarterly cash dividend of 37.5 cents per share, or $1.50 per share annually. The inaugural cash dividend is expected to be paid in mid-June this year.

How have estimates changed since then?

It turns out that the review of estimates has been trending upwards over the past month.

VGM results

Right now, Paycom has a great A growth score, a rating with the same score on the momentum front. However, the stock is rated D for value, putting it in the bottom 40% for this investment strategy.

Overall, the stock has a Total VGM Score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company generally show an upward trend, and the scale of these corrections looks promising. Notably, Paycom carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Paycom is part of the Zacks Internet – Software industry. Over the past month, shares of Snap (SNAP) in the same industry have gained 26.4%. More than a month ago, the company published its results for the quarter ended March 2023.

Snap reported revenue of $988.61 million in the most recent quarter, representing a -7% year-over-year change. EPS of $0.01 for the same period compared to -$0.02 a year ago.

Snap is expected to report a loss of $0.05 per share for the current quarter, representing a year-over-year change of -150%. Over the past 30 days, the Zacks Consensus Estimate has moved -0.5%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Snap. The stock also has a VGM Rating of C.

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