Tuesday, May 16, 2017

Is the Time Ripe to Invest in Paylocity Holding (PCTY)?

If you are planning your portfolio, then Paylocity Holding Corporation PCTY can be a wise pick. Shares of the company have been escalating since it reported impressive third-quarter fiscal 2017 results. The indicators of a stock’s bullish run include a rise in its share price and a continued uptrend in estimates.

Paylocity registered solid returns of approximately 28.31% in the last one year, outperforming the Zacks categorized Internet-Software  industry’s gain of just 22.42%.

Let’s have a look why potential investors should add this company to their portfolio?

Estimate Revision

In the last 30 days, the Zacks Consensus Estimate for Paylocity’s fiscal 2017 witnessed upward revisions. The Zacks Consensus Estimate for fiscal 2017 is now pegged at 13 cents compared with a loss of 3 cents projected 30 days ago.

Impressive Q3 Results

Paylocity reported third-quarter non-GAAP earnings of 40 cents per share compared with 21 cents reported in the year-ago quarter. The company’s revenues came in at $90.3 million, beating the Zacks Consensus Estimate of $88 million. Revenues also increased 27.9% year over year driven by new client addition and existing client growth.

The top line was also backed by a 29% surge in recurring revenues (96% of total revenue) and a 12.3% increase in implementation and other revenues.

Strong Guidance

The company provided outlook for the fourth quarter and raised its fiscal 2017 guidance. For the fourth quarter of fiscal 2017, Paylocity expects revenues in the range of $73.1–$74.1 million. The Zacks Consensus Estimate is pegged at $74 million. Adjusted EBITDA is projected in the band of $5.3–$6.3 million. Non-GAAP earnings per share are expected to be in the range of 0–2 cents.

For fiscal 2017, Paylocity anticipates revenues in the range of $297–$298 million (previously $296–$298 million). The Zacks Consensus Estimate stands at $298 million. Adjusted EBITDA is now projected in the range of $50–$51 million (previously $42–$43 million). Non-GAAP earnings per share are now expected within 57–59 cents (previously 41–43 cents).

Encouraging top and bottom-line guidance for the fourth quarter and fiscal 2017 also helped in boosting investors’ confidence in the company.

Other Driving Factors

We remain positive about Paylocity’s regular investments in SaaS (Software as a service) technology. Notably in the last few quarters, clients moving from traditional payroll service providers to the company’s SaaS-based services have generated a significant portion of Paylocity’s revenues. Therefore we believe that regular investments in technological upgrades, along with product innovations will continue to boost the company’s top line in the long run. Such initiatives are also likely to have a positive impact on its forthcoming results.

Moreover, higher adoption of Paylocity’s ACA (Affordable Care Act) dashboard application, which specializes in tracking employee count, employee status and health care plan affordability, will act as a tailwind.

Paylocity has also delivered positive earnings surprises in the last four quarters with an average beat of 66.97%.

Given the company’s long-term earnings per share growth rate of 36.25%, a Growth Style Score of “B” and a Zacks Rank #1 (Strong Buy), we believe that the stock still has much upside left. You can see the complete list of today’s Zacks #1 Rank stocks here.

Considering these positives, we believe that Paylocity is one such technology stock that deserves a place in investors’ portfolio.

Other Stocks to Consider

Other stocks worth considering in the broader technology sector are DXC Technology Company DXC, Align Technology, Inc. ALGN and Western Digital Corp. WDC, each sporting a Zacks Rank #1.

DXC, Align Technology and Western Digital have a long-tern expected earnings growth rate of 8%, 22.78% and 4.75%, respectively.

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Zacks Investment Research

May 16, 2017 at 07:58PM

from Zacks Equity Research