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Tickers in this Article: PRAA, PAYX, SYKE, BBSI
Payroll and human resource (HR) outsourcing service provider Paychex Inc. (PAYX) recently announced the acquisition of HR Services Inc., a provider of comprehensive HR solutions for an undisclosed sum.

Founded in 1993, Ohio-based HR Services specializes in providing HR Management solutions, tools and even conducting training sessions. The company’s solutions primarily target the small and medium businesses (SMBs). HR Services’ portfolio includes a software-as-a-service model namely, myStaffingPro. This web-based application system helps in tracking applicants and recruitment of the best suited candidates.

Leveraging HR Services’ expertise and its myStaffingPro app, Paychex will be able to offer innovative HR solutions and expand its served markets. Paychex will add myStaffingPro technology to its existing resources to boost its HR Services segment.

In Dec 2012, Paychex acquired the expense management business (“ExpenseWire”) of Rearden Commerce Inc. for an undisclosed sum. ExpenseWire is an online solution that helps organizations to monitor and manage travel expenses of their employees. The expense management business was added to Paychex’ HR Services segment.

We believe that the addition of the applicant tracking system and expense management solution will attract professional employer organizations as they will be able to reduce operating costs.

The company’s initiatives to boost revenue growth through acquisitions are encouraging. Also, the improving trend in SMB IT spending could pave the way for Paychex in the coming quarters. But it is evident that low hiring in the small and medium business (SMB) sector (leading to lower checks per client) and lack of new business wins have come in the way of solid revenue growth.

Currently, Paychex has a Zacks Rank #3 (Hold). Investors may also consider similar stocks such as Barrette Business Services (BBSI), Portfolio Recovery Associates Inc. (PRAA) and Sykes Enterprises Inc. (SYKE), all of which have a Zacks Rank #1 (Strong Buy) and are worth buying.

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