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BofA Securities downgraded Paychex (NASDAQ:PAYX) and ADP (NASDAQ:ADP) to Underperform from Neutral, with a new price target of $105.00 (from $119.00) and $211.00 (from $249.00), respectively.
Paychex reported its Q3 earnings last week, with both EPS and revenues coming in above the consensus estimates. Despite management’s acknowledgment of limited room for improvement in employment and interest rates, shares rallied last week, which BofA considers surprising. The company also said it anticipates a decrease in benefits from pricing and the Employee Retention Tax Credit (ERTC) for fiscal 2024.
ADP will report its Q3/23 earnings results on April 26. While not expecting the company to provide an initial view on 2024 during the call, BofA anticipates that there will be a growth deceleration compared to 2023.
Although the firm doesn’t expect significant downside risk to both companies’ current stock prices, it noted that slower top-line growth and waning estimate upside potential may pose a risk to their 2023 P/E multiples of ~26x.
Both Paychex and ADP shares fell more than 3% intra-day today.
