Analysts Have Lowered Expectations For Paycom Software, Inc. (NYSE:PAYC) After Its Latest Results

Shareholders will be ecstatic, with their stake up 23% over the past week following Paycom Software, Inc.'s (NYSE:PAYC) latest first-quarter results. The result was positive overall - although revenues of US$242m were in line with what the analysts predicted, Paycom Software surprised by delivering a statutory profit of US$1.08 per share, modestly greater than expected. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.

Check out our latest analysis for Paycom Software

Following the latest results, Paycom Software's twelve analysts are now forecasting revenues of US$829.7m in 2020. This would be a modest 6.4% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to decline 15% to US$2.90 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$885.2m and earnings per share (EPS) of US$3.06 in 2020. It's pretty clear that pessimism has reared its head after the latest results, leading to a weaker revenue outlook and a minor downgrade to earnings per share estimates.

The consensus price target fell 8.4% to US$231, with the weaker earnings outlook clearly leading valuation estimates. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Paycom Software, with the most bullish analyst valuing it at US$329 and the most bearish at US$175 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's pretty clear that there is an expectation that Paycom Software's revenue growth will slow down substantially, with revenues next year expected to grow 6.4%, compared to a historical growth rate of 28% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 11% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Paycom Software.

The Bottom Line

The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Paycom Software going out to 2024, and you can see them free on our platform here..

That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Paycom Software , and understanding it should be part of your investment process.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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