Paycom (PAYC) Down 7.6% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Paycom Software, Inc. PAYC. Shares have lost about 7.6% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is PAYC due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Paycom Beats on Q1 Earnings, Raises Guidance

Paycom reported impressive first-quarter 2018 results, surpassing the Zacks Consensus Estimate for both the top and the bottom lines. The figures also came ahead of the guided range.
 
Notably, the company adopted the ASC606 accounting standard effective Jan 1, 2018 and adjusted prior-year figures per the new standards for the ease of comparison.
 
The company’s non-GAAP earnings per share came in at 95 cents per share, which beat the Zacks Consensus Estimate of 90 cents. Also, reported earnings increased from the adjusted figure of 61 cents in the year-ago quarter.

Quarter Details

Paycom Software reported revenues of $153.9 million, which increased 29% from the year-ago quarter. Revenues also surpassed the Zacks Consensus Estimate of $151 million. The year-over-over increase can be attributed to new business wins and product development initiatives.

Moreover, revenues were impacted positively by a 29% year-over-year increase in recurring revenues, which comprised around 99% of total revenues.
 
The company’s adjusted gross margin increased 40 basis points (bps) on a year-over-year basis to 86.5%, primarily due to a higher revenue base.
 
Total adjusted administration expenses were $58.7 million, compared with $46.9 million in the year-ago quarter. Paycom Software’s adjusted EBITDA increased 33.8% year over year to $80.7 million.
 
Non-GAAP net income came in at $55.8 million compared with the adjusted figure of $35.5 million in the year-ago quarter.

Balance Sheet & Cash Flow

Paycom Software exited the first quarter with cash and cash equivalents of $68.1 million compared with $46.1 million in the previous quarter. Accounts receivables were $2.5 million compared with $1.6 million in the previous quarter.
 
The company’s balance sheet comprises long-term debt of $35.3 million compared with $34.4 million reported in the previous quarter.
 
It generated cash flow from operations of $57.6 million in the first quarter.

Guidance

For second-quarter 2018, Paycom Software expects revenues in the range of $123-$125 million. Adjusted EBITDA is expected to be in the range of $43-$45 million.
 
Paycom Software raised its guidance for fiscal 2018. The company now anticipates revenues in the range of $545-$547 million, up from the previous expectation of revenues in the range of $541-$543 million. Adjusted EBITDA is expected to be in the range of $220-$222 million, up from previous guidance range of $213-$215 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There have been four revisions higher for the current quarter compared to four lower.

Paycom Software, Inc. Price and Consensus

 

Paycom Software, Inc. Price and Consensus | Paycom Software, Inc. Quote

VGM Scores

At this time, PAYC has a great Growth Score of A, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

PAYC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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