Paycom Software, Inc (NYSE:PAYC) clocked 31% revenue growth in Q2 to $317 million, beating the consensus of $309 million. EPS of $1.26 beat the consensus of $1.12.
BMO Capital analyst Daniel Jester had a Market Perform rating with a price target of $368. Expectations were high into the print, with PAYC generally a consensus favorite in investor discussions, he noted.
Upside in the quarter and the lifted FY22 guidance were consistent or slightly better with views outlined in his sector preview as the company continued to benefit from a sturdy demand environment and PEPM momentum from BETI, now in ~40% of the base.
Jester saw the solid results as offering an excellent read-through to mid-market cloud peers as they report.
Credit Suisse analyst Kevin McVeigh had an Outperform rating with a PT of $375, up from $350. He expected the PAYC to rally from the Q2 beat and second consecutive 2022 raise.
Paycom benefitted from solid growth in larger clients and continued benefits from upselling Beti to current clients, he noted. Despite interest rate-fueled volatility amid a slowing economy, the PAYC stock is poised to benefit from generational technology shifts in do-it-yourself [DIY] employee consumption.
Displacing inefficient solutions should fuel further retention, McVeigh believed. In addition, he believed payroll outperforms in a late-cycle environment as the industry is less cyclical with secular growth.
Barclays analyst Raimo Lenschow had an Equal Weight rating with $339 PT. He believed Paycom would garner more investor interest after its strong Q2 being relatively unique as it benefits from the tight US labor market.
The above enabled the better-than-expected Q2 results, with even an acceleration of growth, but also a good raise to the full-year outlook aided by more float revenue from higher interest rates.
Given the weakening end demand trends he saw elsewhere in software and FX headwinds from international exposure, PAYC positively stands out. While Lenschow liked the healthy underlying story, he remained on the sideline given the elevated valuation levels.
KeyBanc analyst Jason Celino had an Overweight rating and $390 PT, up from $340. He highlighted that the net raise of $12.5 million represented a larger than typical raise, fueled by intense new business activity and, to a lesser extent, higher float revenue.
Net-net, Celino remained positive on the HCM SaaS sub-sector and believed that Paycom is a high-quality, resilient business with proven execution and best-in-class profitability.
Mizuho analyst Siti Panigrahi had a Neutral rating with a PT of $350. He noted that the Q2 beat and guidance raise reflect the beat and higher float revenues.
Panigrahi was encouraged by management's optimistic tone and lack of macro headwinds and looked to continue monitoring unemployment and new business trends.
Needham analyst Ryan Macdonald had a Buy rating and $450 PT. Paycom reported a strong 2Q22 with both revenue and adjusted EBITDA well above his estimates and guidance amid a challenging macro environment.
Macdonald believed Paycom's product strategy and ROI-driven sales approach would help it grow its market share well beyond 5% over the next half-decade.
He expected Paycom could deliver 25%+ annual revenue growth for the next five years in a market growing at half that rate while driving further margin leverage.
When combined with lower than average stock-based compensation dilution, he believed Paycom deserved a premium multiple versus their peer group. The 2Q22 results reinforced his view of continued execution with new client growth in a challenging macro while also upselling new product innovations such as BETI.
Price Action: PAYC shares traded higher by 4.80% at $354.07 on the last check Wednesday.
