First Read: Business Services Software "Framing Float Amid Inaugural FOM..."

Research evidence excerpt

First Read: Business Services Software "Framing Float Amid Inaugural FOM..."

Valuation Method and Risk Statement

ADP Valuation based on 2-year multiple based on FY-Dec-28E FCF rolled forward by Cost of

Equity. Risks include 1) failure to acquire companies at competitive prices, 2) failure to execute

acquisition integrations, 3) failure to increase pricing from recent acquired companies and 4)

failure to retain management from companies acquired.

Paychex’s performance is highly correlated with macroeconomic trends like health of the

labor market, business cycles, interest rate environment, etc. A macroeconomic downturn

would likely reduce revenue and earnings. Paychex also operates in a highly competitive

industry with large number of cloud native software providers. The company risks losing share

if unable to adapt to new technological advancements and compete effectively with tech-

focused peers. Our price target is based on P/E multiples.

Paycom, price target based on 2028E EV/Sales. Risks to our Buy rating include pace of macro,

competition [incumbent SaaS], growth initiative traction, and potential float income

contraction. Growth would be curtailed by a slowdown in employment given Paycom’s

employee-based PEPM pricing model and the general HCM market’s exposure to

macroeconomic conditions. Additionally, larger HCM providers could become more

competitive down market and constrain Paycom’s growth.

PCTY - Price target derived from EV/Sales on our 2026E. Price target based on a 2-year

multiple on FY26 estimates, rolled forward by Cost of Equity to derive our 12-month price

target. Upside risks include: (1) better-than-expected sales productivity; (2) continued

strength in SMB labor; (3) greater churn to PCTY. Downside risks include: (1) competition