A provider of human capital management software as a service, Paycom Software, Inc. PAYC is set to report second-quarter 2015 results on Aug 4. Last quarter, the company posted a positive earnings surprise of 50%. Let us see how things are shaping up for this announcement.
Factors to Consider
Paycom Software reported better-than-expected first-quarter results. The results were driven by new client additions. Also, an increase in the number of tax form filings positively impacted quarterly revenues.
Furthermore, better-than-expected demand for advanced human capital management and payroll software solutions during the reported quarter were positives. In the soon-to-be-reported quarter, margins are expected to benefit from new sales teams and staffing cost management undertaken by the company. Also, significant investments in growth areas to expand capacity will boost profitability going forward.
However, in the payroll processing sector, new entrants as well as existing competitors such as ADP, Intuit, Oracle Corporation and Paychex, Inc. have become more aggressive in the business. We believe that if this trend continues, Paycom may come under pressure as rising competition will reduce its revenue growth potential in the future
Earnings Whispers
Our proven model does not conclusively show that Paycom Software is likely to beat the Zacks Consensus Estimate in its upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Paycom Software is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 6 cents per share.
Zacks Rank: Paycom Software has a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some other companies, which are worth considering, as our model shows that they have the right combination of these two elements:
Walker & Dunlop, Inc. WD, with an Earnings ESP of +5.77% and a Zacks Rank #1 (Strong Buy)
CubeSmart CUBE, with an Earnings ESP of +6.90% and a Zacks Rank #2 (Buy)
Agrium Inc. AGU, with an Earnings ESP of +0.62% and a Zacks Rank #3
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