RBC Capital Markets Upgrades Paycom Software On Employment Tailwind

Recent U.S. employment data bodes well for payroll vendors like Paycom Software Inc (NYSE: PAYC), suggesting upside to management’s guidance, which assumed flat employment, according to RBC Capital Markets.

The Paycom Software Analyst: Alex Zukin upgraded Paycom Software from Sector Perform to Outperform and raised the price target from $305 to $450.

The Paycom Software Thesis: The company appears to have a good setup for the third quarter, with 5%-8% upside to revenue, Zukin said in the upgrade note.

“The average beat vs. guidance last year was 2.6%; if both the normal beat and the employment tailwind occur, we believe upside could be to $202-207M (5.2%-7.7% above guidance),” the analyst said. 

The Street estimates assume sequential growth in the fourth quarter, but could prove to be aggressive, “given the 1-off headwind of an extra 1/2 paycycle in 3Q,” he said. 

Zukin expressed optimism around Paycom Software generating around 30% growth in 2021, driven by “stronger bookings and good employment tailwinds,” which could “lead to a re-rating of the stock.”

PAYC Price Action: Shares of Paycom Software were down 1.82% at $377.67 at last check Wednesday. 

Photo courtesy of Paycom.