Friday's job report came in much better than expected as did the positive revisions to prior months reported jobs. The stock market rose on the news and hit its highest level in four years. Although I am skeptical about the continued ability of the market to rally, improving job growth seems genuine for the moment. One company that should have enhanced prospects on more robust job growth is Paychex (PAYX). The company also boasts a 4% dividend for investors looking for yield.
Paychex, Inc. provides payroll, human resource, and benefits outsourcing solutions for small to medium sized businesses. Its services include payroll processing, such as calculation, preparation, and delivery of employee payroll checks; production of internal accounting records and management reports; preparation of federal, state, and local payroll tax returns; and collection and remittance of clients payroll obligations. (Business Description from Yahoo Finance).
7 Reasons Paychex is a solid value at under $32 a share:
- The stock yields 4% and has raised its dividend at roughly a 5% annual rate over the last five years.
- PAYX has a solid balance sheet with over $400mm in net cash on the books.
- The company is selling in the bottom third of its five year valuation range based on P/CF, P/B and P/S.
- Earnings are going in the right direction despite the anemic job growth of the last few years. PAYX earned $1.42 in FY2011, is projected to make $1.52 in FY2012 and is expected to bump up earnings per share to $1.63 in FY2013.
- The company should be a significant beneficiary of a more robust job recovery. Paychex also does not have any public contracts so will not be impacted by continued layoffs in local and state workforces.
- Credit Suisse has an "outperform" rating on the stock and just upped its price target to $36 two weeks before Friday's job report.
- 100% of the company's revenues come from the United States (no exposure to Europe) and is largely recurring and stable.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PAYX over the next 72 hours.
