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Consider Including This Outsourcing Company In Your Portfolio

August 20, 2014 | About:
mitu77

mitu77

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Outsourcing organizations are constantly popular on the grounds that they enhance income for customers with the best accessible assets. Staffing and outsourcing organizations are similar to impetuses, supporting organizations in this transitional period of the economy. As organizations surface out from the prolonged recession, they search to staffing organizations for enlisting new ability. As indicated by Staffing Industry Analysts, the U.S. staffing industry is anticipated to be $160 billion by 2018 from $128.6 billion in 2012. As organizations keep on pursuing development techniques, there will be nonstop interest for staffing and outsourcing organizations later on.

Paychex (PAYX), is a leading provider of payroll, human resource, insurance and benefits outsourcing solutions for small to medium businesses in the U.S. The implementation of the Affordable Care Act (ACA) in January 2014 created a new opening for Paychex. As per this act, companies with over 50 employees have to reassess their employee benefit and health insurance policy. The company unwrapped Paychex ESR service that enabled businesses to adapt and incorporate the various health care reforms. The company also provides private exchange to medium and small companies to organize their health insurance benefits.

Strong quarter

The company recently reported its fourth quarter results for fiscal 2014. It recorded a revenue growth of 10% for the fourth quarter; 6% for fiscal 2014 as compared to same period last year. The revenues for the company are mainly derived from two segments, payroll services and Human Resource services. Both these segment witnessed annual and quarterly revenue growth.

Payroll service revenue increased 3% for the fourth quarter; 4% for fiscal 2014. Growth was mainly driven by increase in revenue per check, client base and checks per payroll. Revenue per check enhanced as a result of price increases, coupled with the impact of increased product penetration. The company now maintains a client base of 580,000 as recorded on May 31, 2014, an increase of approximately 2% from May 31, 2013.

Human Resource Services revenue increased 10% for the fourth quarter, 12% for fiscal 2014 as compared with respective periods last year. The growth in HRS revenue was driven primarily by client base growth, particularly in Paychex HR Solutions, retirement services, and online HR administration products.

Total expenses increased 4% for the fourth quarter and 5% for the fiscal year, compared to the respective periods last year. The increase in the expense is mainly due to the fact that the company is focused on product development and marketing. It has been constantly strengthening its sales team to leverage sales uplift in future.

For the fiscal 2015, the company anticipates HRS revenue growth to be in range of 16%-19% and payroll service revenue to be in the range of 3%-5%. The expected growth for the net income can be around 6% to 8%.

Safeguarding investors with repurchase programs

The confidence of an investor in a company is always gained with repurchase programs and rising dividends. Paychex declared a nearly 9% increase in the company’s regular quarterly dividend. The dividend, increasing from $.35 per share to $.38 per share, is payable August 15, 2014 to shareholders of record August 1, 2014.

In the past the company had endorsed a stock repurchase project to buy up to $350 million of Paychex regular stock, with approval for this project terminating May 31, 2014. In the final quarter, the company repurchased 1.1 million shares of normal stock for an aggregate of $46.8 million. An aggregate of $249.7 million of basic stock, or 6.2 million shares, has been repurchased under this project in financial 2014.

Conclusion

Paychex is ready to grab the opportunity in healthcare reforms. The company is positioned strong with cash and total corporate investments of $936.8 million and no debt. I would suggest a buy for this company if you are looking for long-term returns


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