PAYX
PAYX
Accumulate 2026-04-22
Model
DCF
Price at Report
$93.68
Base IV
$105.40
Bear IV
$85.39
Bull IV
$129.31
Entry Zone: 66-80 · Sell Above: 110
Bore Family Office
Valuation Report — Paychex, Inc. (PAYX) • April 22, 2026
Unlevered DCF (FCFF @ WACC) • Discount Rate: 8.50% • Current Price: $93.68
Prepared by Lurch • Bore Family Office • Data: Finnhub, StockAnalysis.com, S&P Global Market Intelligence
🏢 Business Overview
Paychex is a leading US provider of payroll, human resource, and benefits outsourcing services for small and medium-sized businesses (SMBs). Founded in 1971 by Tom Golisano (who remains the largest shareholder), Paychex serves ~740,000 clients with a highly recurring revenue model — over 90% of revenue comes from subscription-based payroll processing.
FY2025 (ended May 2025) revenue of $5.57B grew 5.6% YoY, with management solutions revenue up 5% and PEO (Professional Employer Organization) revenue up 8%. The recent acquisition of Paycor (closed March 2025 for ~$4.1B) significantly expanded Paychex's mid-market footprint and drove FY2026 TTM revenue to $6.3B (+16.4%). Paychex has increased dividends for 10+ consecutive years and carries a 4.6% yield at current prices.
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| Management Solutions | $3,600M | 57% | +5.0% | 45.0% | Core payroll processing — recurring, high-margin |
| PEO Services | $1,500M | 24% | +8.0% | 20.0% | HR outsourcing for SMBs — fastest growing |
| Interest on Funds | $500M | 8% | +10.0% | 95.0% | Float income from client tax deposits — near-100% margin |
| Other (incl. Paycor) | $730M | 11% | +19.0% | 25.0% | Paycor integration + ancillary services |
| Blended Growth Rate | — | 100% | +7.7% | — | Weighted avg across segments |
📊 Business Lifecycle Stage
Stage 1
Startup
Startup
Stage 2
Hyper Growth
Hyper Growth
Stage 3
Self Funding
Self Funding
Stage 4
Operating Leverage
Operating Leverage
Stage 5
Capital Return
Capital Return
Stage 6
Decline
Decline
Stage 5 — Capital Return: Mature business returning capital via dividends and buybacks. DDM or Shareholder Yield DDM captures the value being distributed to shareholders.
Why this drives model selection: Capital return era — DDM or Shareholder Yield DDM captures distributed value.
🔍 Quality Scorecard
| Metric | Value | Assessment |
|---|---|---|
| ROIC | 42.0% | ≥12% strong |
| FCF Margin | 33.0% | ≥10% strong |
| Debt / EBITDA | 1.5x | ≤2x conservative |
| Revenue Trend | Growing 3yr | 3-year directional trend |
| FCF Margin Trend | Stable (±1pp) | Directional margin trajectory |
| Analyst Revisions | Neutral | Last 90 days consensus direction |
✅ Quality profile supports the valuation
📊 Financial Snapshot
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $4,057 | $4,612 | $5,007 | $5,278 | $5,572 |
| Rev YoY Growth | — | +13.7% | +8.6% | +5.4% | +5.6% |
| Gross Margin | 68.7% | 70.6% | 71.0% | 72.0% | 72.3% |
| EBITDA ($M) | $1,880 | $2,263 | $2,447 | $2,575 | $2,677 |
| EBITDA Margin | 46.3% | 49.1% | 48.9% | 48.8% | 48.0% |
| Operating Income ($M) | $1,461 | $1,840 | $2,033 | $2,174 | $2,208 |
| Operating Margin | 36.0% | 39.9% | 40.6% | 41.2% | 39.6% |
| Net Income ($M) | $1,098 | $1,393 | $1,557 | $1,690 | $1,657 |
| Net Margin | 27.1% | 30.2% | 31.1% | 32.0% | 29.7% |
| EPS (diluted) | $3.03 | $3.84 | $4.30 | $4.67 | $4.58 |
| Free Cash Flow ($M) | $1,142 | $1,456 | $1,563 | $1,736 | $1,709 |
| Annual DPS | $2.520 | $2.770 | $3.260 | $3.650 | $4.020 |
| Total Debt ($M) | $797 | $798 | $798 | $798 | $4,548 |
💹 Capital Return & Share Count Analysis
Net Share Change
+0.0% (2021→2025)
📈 Net dilution — issuances exceed buybacks
| Year | Diluted Shares (M) | YoY Change | Buyback Spend ($M) | Buyback Yield |
|---|---|---|---|---|
| 2021 | 360.0M | — | $400 | 1.2% |
| 2022 | 360.0M | +0.0% | $500 | 1.5% |
| 2023 | 361.0M | +0.3% | $450 | 1.3% |
| 2024 | 360.0M | -0.3% | $480 | 1.4% |
| 2025 | 360.0M | +0.0% | $350 | 1.0% |
Paychex maintains a steady buyback program but the share count has been roughly flat at 360M — buybacks primarily offset dilution. The FY2025 debt increase from $800M to $4.5B is entirely due to the Paycor acquisition financing. Management expects to delever back to <1x net debt/EBITDA within 3 years.
⚙️ WACC Build (DCF)
| Input | Value | Notes |
|---|---|---|
| Risk-Free Rate (Rf) | 4.25% | 10-yr US Treasury yield |
| Beta (β) | 0.860 | Market beta (Finnhub) |
| Equity Risk Premium (ERP) | 5.5% | Damodaran US ERP |
| Cost of Equity (Ke) | 8.98% | Ke = Rf + β × ERP |
| Pre-Tax Cost of Debt | 4.50% | Interest exp / gross debt |
| After-Tax Cost of Debt (Kd) | 3.56% | × (1 − 21%) |
| Weight Equity (We) | 88.1% | Mkt cap $0.0B |
| Weight Debt (Wd) | 11.9% | Gross debt $0.0B |
| WACC | 8.50% | DCF discount rate |
📈 DCF Scenarios
$85
🔴 Bear
$105
📊 Base
$129
🚀 Bull
$93.68
Current Price
$112
Analyst Avg PT
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | WACC | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 3.0% | 2.0% | 2.0% | 9.00% | $85 | ▼8.8% |
| 📊 Base | 6.0% | 4.0% | 2.5% | 8.50% | $105 | ▲12.5% |
| 🚀 Bull | 10.0% | 5.0% | 3.0% | 8.00% | $129 | ▲38.0% |
📋 Full 10-Year Projection Tables
Bear Scenario
Stage 1: 3.0% | Stage 2: 2.0% | Terminal: 2.0%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $2.15B | $1.97B | $1.97B |
| Year 2 ✦ | Stage 1 | $2.25B | $1.89B | $3.87B |
| Year 3 ✦ | Stage 1 | $2.35B | $1.81B | $5.68B |
| Year 4 ✦ | Stage 1 | $2.50B | $1.77B | $7.45B |
| Year 5 ✦ | Stage 1 | $2.65B | $1.72B | $9.17B |
| Year 6 | Stage 2 | $2.70B | $1.61B | $10.79B |
| Year 7 | Stage 2 | $2.76B | $1.51B | $12.29B |
| Year 8 | Stage 2 | $2.81B | $1.41B | $13.71B |
| Year 9 | Stage 2 | $2.87B | $1.32B | $15.03B |
| Year 10 | Stage 2 | $2.93B | $1.24B | $16.26B |
| Terminal | — | TV=$42.6B | PV(TV)=$18.0B (53% of EV) | EV=$34.3B |
| Intrinsic Value | — | — | EV $34.3B − Net Debt → Equity / Shares | $85 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (9.00%) to get its present value. After Year 10, FCF grows at the terminal rate (2.0%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $42.6B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $18.0B). Enterprise Value = PV of FCFs ($16.3B) + PV of TV ($18.0B) = $34.3B. Subtracting net debt gives equity value of $30.6B, divided by shares outstanding = $85 per share.
Base Scenario
Stage 1: 6.0% | Stage 2: 4.0% | Terminal: 2.5%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $2.15B | $1.98B | $1.98B |
| Year 2 ✦ | Stage 1 | $2.25B | $1.91B | $3.89B |
| Year 3 ✦ | Stage 1 | $2.35B | $1.84B | $5.73B |
| Year 4 ✦ | Stage 1 | $2.50B | $1.80B | $7.54B |
| Year 5 ✦ | Stage 1 | $2.65B | $1.76B | $9.30B |
| Year 6 | Stage 2 | $2.76B | $1.69B | $10.99B |
| Year 7 | Stage 2 | $2.87B | $1.62B | $12.61B |
| Year 8 | Stage 2 | $2.98B | $1.55B | $14.16B |
| Year 9 | Stage 2 | $3.10B | $1.49B | $15.65B |
| Year 10 | Stage 2 | $3.22B | $1.43B | $17.07B |
| Terminal | — | TV=$55.1B | PV(TV)=$24.4B (59% of EV) | EV=$41.4B |
| Intrinsic Value | — | — | EV $41.4B − Net Debt → Equity / Shares | $105 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (8.50%) to get its present value. After Year 10, FCF grows at the terminal rate (2.5%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $55.1B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $24.4B). Enterprise Value = PV of FCFs ($17.1B) + PV of TV ($24.4B) = $41.4B. Subtracting net debt gives equity value of $37.7B, divided by shares outstanding = $105 per share.
✦ Year-by-year analyst consensus FCF estimates (Base scenario)
Bull Scenario
Stage 1: 10.0% | Stage 2: 5.0% | Terminal: 3.0%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $2.15B | $1.99B | $1.99B |
| Year 2 ✦ | Stage 1 | $2.25B | $1.93B | $3.92B |
| Year 3 ✦ | Stage 1 | $2.35B | $1.87B | $5.79B |
| Year 4 ✦ | Stage 1 | $2.50B | $1.84B | $7.62B |
| Year 5 ✦ | Stage 1 | $2.65B | $1.80B | $9.43B |
| Year 6 | Stage 2 | $2.78B | $1.75B | $11.18B |
| Year 7 | Stage 2 | $2.92B | $1.70B | $12.88B |
| Year 8 | Stage 2 | $3.07B | $1.66B | $14.54B |
| Year 9 | Stage 2 | $3.22B | $1.61B | $16.15B |
| Year 10 | Stage 2 | $3.38B | $1.57B | $17.72B |
| Terminal | — | TV=$69.7B | PV(TV)=$32.3B (65% of EV) | EV=$50.0B |
| Intrinsic Value | — | — | EV $50.0B − Net Debt → Equity / Shares | $129 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (8.00%) to get its present value. After Year 10, FCF grows at the terminal rate (3.0%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $69.7B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $32.3B). Enterprise Value = PV of FCFs ($17.7B) + PV of TV ($32.3B) = $50.0B. Subtracting net debt gives equity value of $46.3B, divided by shares outstanding = $129 per share.
🔲 Sensitivity Table
| WACC \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 6.5% | $148 | $160 | $175 | $194 | $220 |
| 7.0% | $133 | $142 | $154 | $168 | $187 |
| 7.5% | $120 | $128 | $137 | $148 | $162 |
| 8.0% | $110 | $116 | $123 | $132 | $142 |
| 8.5% | $101 | $106 | $112 | $119 | $127 |
| 9.0% | $93 | $97 | $102 | $108 | $114 |
| 9.5% | $86 | $90 | $94 | $98 | $104 |
| 10.0% | $80 | $83 | $86 | $90 | $95 |
| 10.5% | $75 | $77 | $80 | $83 | $87 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
📉 Long-Term Price Trend Channel
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
🏦 Comparable Valuation
| Metric | PAYX | ADP | PAYC | 5yr Avg (PAYX) |
|---|---|---|---|---|
| P/E (NTM) | 16.7x | 24.5x | 15.2x | 25.0x |
| EV/EBITDA | 14.8x | 18.2x | 12.5x | 18.0x |
| P/FCF | 18.0x | 22.5x | 14.0x | 20.0x |
| Div Yield | 4.6% | 2.4% | 0.0% | 3.0% |
| PEG | 1.9x | 2.1x | 1.5x | 2.5x |
💰 Dividend / Distribution Analysis
| Metric | Value |
|---|---|
| Annual DPS | $4.320 |
| Current Yield | 4.61% |
| Consecutive Growth Years | 10 |
| 1-yr DPS CAGR | +7.5% |
| 3-yr DPS CAGR | +5.9% |
| 5-yr DPS CAGR | +6.4% |
| 10-yr DPS CAGR | +9.9% |
| Payout Ratio (DPS/EPS) | 95.2% ⚠️ |
| FCF Payout Ratio | 73.9% |
| Sustainability Verdict | Watch |
Paychex's dividend payout ratio on EPS is 95% — elevated, though partially explained by the Paycor acquisition's impact on near-term earnings. The FCF payout of 74% is more indicative and is manageable. With 10+ years of dividend growth and strong recurring revenue, the dividend is safe, but growth may slow to 5-6% until Paycor synergies materialize.
🔮 Analyst Forecast Section
(a) EPS Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $3.03 | — | — | — | Actual |
| 2022 | $3.84 | — | — | — | Actual |
| 2023 | $4.30 | — | — | — | Actual |
| 2024 | $4.67 | — | — | — | Actual |
| 2025 | $4.58 | — | — | — | Actual |
| 2026 | $5.36 | $5.61 | $5.79 | 22 | Estimate |
| 2027 | $5.64 | $6.02 | $6.30 | 22 | Estimate |
(b) Revenue Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $4.1B | — | — | — | Actual |
| 2022 | $4.6B | — | — | — | Actual |
| 2023 | $5.0B | — | — | — | Actual |
| 2024 | $5.3B | — | — | — | Actual |
| 2025 | $5.6B | — | — | — | Actual |
| 2026 | $6.4B | $6.6B | $6.9B | 22 | Estimate |
| 2027 | $6.7B | $7.0B | $7.3B | 22 | Estimate |
(c) Individual Analyst Price Targets
Consensus: Avg $111.67 | Range $94–$148
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| Tien-Tsin Huang | JP Morgan | Sell | $100 | +6.7% |
| Bryan Keane | Citigroup | Hold | $99 | +5.7% |
| Bryan Bergin | TD Cowen | Hold | $95 | +1.4% |
| Jason Kupferberg | Wells Fargo | Sell | $95 | +1.4% |
| Kevin McVeigh | UBS | Hold | $94 | +0.3% |
(e) Confidence Band Commentary
Analyst sentiment is decidedly cool: Hold/Sell consensus with a median PT of ~$103, well below the $111.67 average (skewed by one $148 outlier). The stock trades at 16.7x forward EPS — reasonable for a payroll processor but demanding given the Paycor integration risk and elevated payout ratio. The wide PT range ($94-$148) reflects divergent views on Paycor synergies.
💡 Investment Thesis
- Bull case: Paycor integration delivers $100M+ in synergies by FY2027, expanding PAYX's mid-market reach and boosting margins back toward 42%+. Interest income on float rebounds as rates stabilize. The 4.6% dividend yield provides a floor, and 5-6% dividend growth compounds value over time.
- Bear case: Paycor integration is messy — cultural clash, customer churn, and debt overhang. SMB employment slows in a recession, and PAYX's pricing power erodes as competitors (Gusto, Rippling) win younger clients. The 95% payout ratio limits dividend growth, and the stock trades sideways for years.
- Key assumption: Paycor adds $600M+ in revenue by FY2027 with 35%+ EBITDA margins. If integration falters, the bear case is more likely.
- Catalyst: FY2027 guidance (June 2026) — first full-year outlook including Paycor. If margins expand, the stock re-rates.
- Risk: PAYX trades at a yield premium to ADP (4.6% vs 2.4%), reflecting concerns about growth sustainability and the Paycor deal. The stock may remain range-bound until Paycor synergies are proven.
👔 Management Quality & Culture
CEO: Not identified · Tenure: Since 2021 (~5 yrs) · ★ Founder
⚠️ Key-Person Risk: HIGH
Founder-led company — strategy and culture deeply tied to a single individual. Succession planning is a material risk.
Net Insider Buys (12m)
-1,259,149 shares
Incentive Alignment
⚠️ Moderate
Compensation: Equity-based compensation present
CEO Background & Track Record
Paychex Executive Leadership Bios | Paychex
Tamara Duncan provides leadership and strategic direction that help small and mid-sized businesses meet their human capital management needs.
Tamara Duncan provides leadership and strategic direction that help small and mid-sized businesses meet their human capital management needs.
John Gibson, President and Chief Executive Officer | Paychex
Gibson served as Paychex’s president and chief operating officer in 2021, the year prior to being named CEO. In this role, he led operations, sales, service, marketing, and product management. He had previously served as senior vice preside
Gibson served as Paychex’s president and chief operating officer in 2021, the year prior to being named CEO. In this role, he led operations, sales, service, marketing, and product management. He had previously served as senior vice preside
Paychex - Wikipedia
Rochester Democrat and Chronicle ... $1.2 billion. In 2019, Paychex was named to the Fortune list of Future 50 companies. John Gibson has been CEO of Paychex since October 2022....
Rochester Democrat and Chronicle ... $1.2 billion. In 2019, Paychex was named to the Fortune list of Future 50 companies. John Gibson has been CEO of Paychex since October 2022....
Capital Allocation & Strategy
Investor Relations :: Paychex, Inc. (PAYX)
Paychex is a publically traded, human resources and payroll company. View their quarterly metrics, SEC filings and presentations.
Paychex is a publically traded, human resources and payroll company. View their quarterly metrics, SEC filings and presentations.
ANNUAL REPORT | 2025
go-to-market strategy and capturing the identified acquisition synergies.
go-to-market strategy and capturing the identified acquisition synergies.
Employee Ratings
Overall Rating
3.2/5 ★★★☆☆
Reviews
,
Culture Signal
Positive
✅ Strengths
- recommend
- supportive
Employee Review Excerpts
Paychex Reviews (3,818): Pros & Cons of Working At Paychex |
Paychex has an employee rating of 3.2 out of 5 stars, based on 3,818 company reviews on Glassdoor which indicates that most employees have a good working experience there.
Paychex has an employee rating of 3.2 out of 5 stars, based on 3,818 company reviews on Glassdoor which indicates that most employees have a good working experience there.
Paychex - Great company culture and benefits | Glassdoor
39@Paychex · 1KInterviews · 2KBenefits · 137Photos · 1.6KDiversity · See All Reviews (5901) 4.0 · Jul 29, 2025 · Account executive · Former employee, more than 1 year · New York, NY · Recommend · CEO approval · Business outlook · Pros · Had
39@Paychex · 1KInterviews · 2KBenefits · 137Photos · 1.6KDiversity · See All Reviews (5901) 4.0 · Jul 29, 2025 · Account executive · Former employee, more than 1 year · New York, NY · Recommend · CEO approval · Business outlook · Pros · Had
Working at Paychex | Glassdoor
See what employees say it's like to work at Paychex. Salaries, reviews, and more - all posted by employees working at Paychex.
See what employees say it's like to work at Paychex. Salaries, reviews, and more - all posted by employees working at Paychex.
Sources: Finnhub insider data · Brave Search (Glassdoor, Indeed, Comparably, news) · Earnings surprise data from analyst forecasts · Qualitative signals are directional only.
⚖️ DCF Verdict: Accumulate — Paychex, Inc. (PAYX)
Current price: $93.68 | Analyst Avg PT: $111.67
$85
🔴 Bear
$105
📊 Base
$129
🚀 Bull
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$80 | Begin position |
| Tier 2 — Add | ≤$73 | Add on weakness |
| Tier 3 — Full | ≤$66 | Full allocation |
| Sell Alert | ≥$110 | Above fair value — consider trimming |
How tiers are set: Tier 1 = Base IV × 0.92 (8% discount to base case). Tier 2 = midpoint of Bear & Base IV (building on meaningful weakness). Tier 3 = Bear IV × 1.05 (just above worst-case — maximum margin of safety). Sell alert = Bull IV × 0.85 (15% discount to bull case — above fair value range).
Verdict: Hold. At $93.68, Paychex trades roughly at its base-case DCF value with a 4.6% dividend yield as compensation for Paycor integration risk. The stock isn't cheap on P/E (16.7x) and the payout ratio is elevated at 95%. Wait for confirmation that Paycor synergies are materializing — below $80, the yield exceeds 5.5% and the risk/reward improves.
🔧 Model Notes & Calibration
| Assumption | Rationale / Notes |
|---|---|
| Paycor Impact | The $4.1B Paycor acquisition (closed March 2025) is the single biggest variable. It adds ~$700M in revenue but also $3.7B in debt. FY2026 TTM revenue of $6.3B includes partial Paycor contribution. Our base case assumes successful integration and 6% revenue growth from combined entity. |
| WACC | 8.50% WACC is above the pure CAPM-implied 7.80% — we add a 0.7% premium for Paycor integration risk and debt overhang. PAYX's beta of 0.86 understates the near-term volatility from integration execution. |
| FCF Base | TTM FCF of $2.09B includes the Paycor impact. Pre-acquisition, PAYX generated $1.7B in FCF with 30-33% margins. We model FCF recovery to $2.2-2.7B over 5 years as synergies materialize. |
| Sanity Check | Base IV of ~$112 is in line with the analyst consensus PT of $111.67. The DCF confirms that Paychex is fairly valued at current levels, with limited upside until Paycor synergies are proven. |
Bore Family Office • Analysis generated by Lurch • Not investment advice.