Nasdaq 100 component Paychex, Inc. (PAYX) reports fiscal first quarter 2021 earnings in Tuesday's pre-market, with analysts expecting a profit of $0.55 per share on $887.5 million in revenue. The stock fell nearly 5% despite meeting top- and bottom-line fourth quarter 2020 estimates in July, with shareholders hitting the exits after a profit and revenue warning. It took more than two months for the stock to recover from that downdraft, but it's still trading below June recovery levels.
- Paychex often provides insight on broad U.S. employment trends.
- The stock has been running in place since June while accumulation readings deteriorate.
- Not a single Wall Street analyst has posted a "Buy" rating on Paychex stock.
The company provides staffing and outsourcing services, so results will shine a light on the employment outlook after an encouraging summer, underpinned by declining COVID cases and broad reopening efforts. However, unemployment has remained stubbornly high in the most affected industries, as well as those in which remote work strategies cannot be utilized. Many believe that conditions will now get worse, with colder weather raising the threat of a second infectious wave.
The stock hasn't gotten positive press since Goldman Sachs issued a "Sell" rating just one week after the fourth quarter release, adding risk heading into the report. Noted investor David Einhorn of Greenlight Capital closed out a 190,000-share stake in August, adding to uncertainty that has translated into a multi-month holding pattern. Ominously, accumulation has continued to tick lower since August despite sideways action, telling us that many shareholders have given up and moved to the sidelines.
Wall Street consensus adds to elevated risk, with a "Moderate Sell" rating based upon zero "Buy," five "Hold," and two "Sell" recommendations. Price targets currently range from a low of $64 to a Street-high $78, while the stock has opened Monday's session more than $2 above the high target. This odd placement warns that Paychex will need to beat estimates by a wide margin and post upbeat second quarter guidance to see analyst upgrades and increased price targets.
Outsourcing is the business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in-house by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office.
Paychex Long-Term Chart (2000 – 2020)
A multi-year uptrend topped out at $61.25 in 2000, giving way to a downtrend that found support in the low $20s. A bounce into 2007 recouped about two-thirds of bear market losses, ahead of a decline that undercut the prior low by eight cents in 2009. The stock broke out above the 2007 high in 2015, entering a channeled uptick that completed a round trip into the 2000 peak in 2016. A 2017 breakout attracted healthy buying interest, reaching an all-time high at $90.54 in February 2020.
The stock fell nearly 50% into March's four-year low and bounced strongly into the second quarter, stalling at the .786 Fibonacci selloff retracement level at $81 in June. Price has held an 11-point trading range since that time and has lifted back to June resistance ahead of Tuesday's confessional. A breakout into the $80s should open the door to a test at February's all-time high, but the odds now favor sellers due to deteriorating accumulation measurements and the lack of bullish coverage in the past three months.
Accumulation typically refers to a position size in an asset that increases over multiple transactions. Accumulation can also refer to the overall addition of positions to a portfolio. It can also refer to a general increase in buying activity in an asset. In this case, the asset is said to be "under accumulation" or "being accumulated."
The Bottom Line
Nasdaq 100 component Paychex, which often acts as a proxy for rising and falling employment levels, heads into Tuesday's earnings release without a single analyst posting a "Buy" rating.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.