A provider of human capital management software as a service, Paycom Software, Inc. PAYC is set to report third-quarter 2015 results on Nov 3. Last quarter, the company posted a positive earnings surprise of 66.7%. Let us see how things are shaping up for this announcement.
Factors to Consider
Paycom Software reported better-than-expected second-quarter fiscal 2015 results. Also, year-over-year comparisons on both counts were favorable. The results were driven by a shift toward cloud-based offerings and new client additions.
Revenue growth seemed to be steady and was positively impacted by higher recurring revenues and higher traction in cloud-based offerings. Better-than-expected demand for advanced human capital management and payroll software solutions during the reported quarter were the other positives.
We believe that higher traction of Paycom Software’s Affordable Care Act (“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. Also, Paycom Software might witness long-term growth by successfully cross-selling newer products to the existing client base, which will boost revenues, going forward.
Nevertheless, competition from companies like Paylocity Holding Corporation, Intuit Inc. and Paychex, Inc. remains a headwind.
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 are at 7 cents per share.
Zacks Rank: Paycom Software has a Zacks Rank #2 (Buy). 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 the two elements needed to post an earnings beat:
CDW Corp. 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
CyberArk Software, Ltd. CYBR, with an Earnings ESP of +10.00% and a Zacks Rank #2
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