Paylocity Holding Corporation PCTY is set to report first-quarter fiscal 2016 results on Nov 5. Last quarter, the company posted a positive earnings surprise of 38.5%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Paylocity reported encouraging fourth-quarter fiscal 2015 results. Also, year-over-year comparisons were favorable. The results were driven by solid sales and operational implementation during the quarter. Also, an increase in average revenue per new client positively impacted quarterly results. We expect the company to continue the trend in the soon to be reported quarter as well.
We also remain positive about Paylocity’s continuous investments in SaaS technology. It is to be noted that over the past few quarters a significant portion of the revenues has been generated from clients moving from traditional payroll service providers to the company’s SaaS-based services. Therefore, we believe that regular investments in technological upgrades, along with product innovations, will continue to boost the company’s top line over the long run. Initiatives such as these are also likely to have a positive impact on the upcoming results.
Furthermore, higher adoption of Paylocity’s ACA dashboard application that tracks employee count, employee status and health care plan affordability will act as a tailwind for the company in the long run.
However, stiff competition in the payroll processing sector from new entrants as well as existing competitors such as Automatic Data Processing, Inc. ADP, Oracle Corporation and SAP SE remains a headwind.
Earnings Whispers
Our proven model does not conclusively show that Paylocity is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1(Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss 15 cents. Hence, the difference is 0.00%.
Zacks Rank: Paylocity holds a Zacks Rank #2. Though a favorable Zacks Rank increases the predictive power of ESP, a 0.00% ESP makes surprise prediction difficult.
Conversely, we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are a few companies worth considering that, according to our model, have the right combination of elements to post an earnings beat this quarter:
CDW Corporation CDW with an Earnings ESP of +2.63% and a Zacks Rank #2
CenturyLink, Inc. CTL with an Earnings ESP of +1.45% and a Zacks Rank #2
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