Company Reports

We lowered our fair value estimate for no-moat Paycor to $21 per share from $26 following mixed third-quarter fiscal 2024 results, which once again fell short of our above-guidance revenue forecast but exceeded our profitability expectations. On reassessing the firm’s outlook, we have tempered our long-term client base growth assumptions as Paycor continues to ramp up sales capacity post elevated turnover, weighing on our top-line growth forecast and valuation. Relative to our updated fair value estimate, Paycor shares screen as fairly valued on a risk-adjusted basis, and we see better opportunities among our moatier payroll and human capital management software coverage.

Paycor HCM is well positioned to take share in the expansive and highly fragmented small- and midsize-business payroll and human capital management market through industry consolidation and rising demand for sophisticated HCM solutions. At present, most of the small-business market is serviced by regional providers or do-it-yourself solutions such as Intuit QuickBooks or Microsoft Excel, creating meaningful scope for greater penetration by functionality-rich providers like Paycor.

We maintain our $26 fair value estimate for no-moat Paycor following sound second-quarter fiscal 2024 results that fell marginally short of our above-guidance top-line forecasts but once again exceeded our profitability expectations. Following the release, we made minor adjustments to our near-term assumptions that are offset by time value of money. While Paycor shares continue to screen as undervalued, we see better opportunities among our moatier payroll and HCM coverage.

Paycor HCM is well positioned to take share in the expansive and highly fragmented small- and midsize-business payroll and human capital management market through industry consolidation and rising demand for sophisticated HCM solutions. At present, most of the small-business market is serviced by regional providers or do-it-yourself solutions such as Intuit QuickBooks or Microsoft Excel, creating meaningful scope for greater penetration by functionality-rich providers like Paycor.

Paycor HCM is well positioned to take share in the expansive and highly fragmented small- and midsize-business payroll and human capital management market through industry consolidation and rising demand for sophisticated HCM solutions. At present, most of the small-business market is serviced by regional providers or do-it-yourself solutions such as Intuit QuickBooks or Microsoft Excel, creating meaningful scope for greater penetration by functionality-rich providers like Paycor.

We maintain our $26 fair value estimate for no-moat Paycor following the release of strong first-quarter fiscal 2024 results, which met our top-line growth expectations but exceeded our profitability assumptions. We believe payroll and human capital management, or HCM, software firms have been unfairly hammered over the past week over concerns that automation will materially hinder industry growth as fewer payroll errors cannibalize nonrecurring revenue for payroll corrections. Paycor allayed investor fears by confirming that revenue is mostly derived from bundled per employee per month subscription fees, with immaterial contribution from payroll correction revenue. Despite shares rallying after results, Paycor continues to screen as undervalued relative to our unchanged valuation. Nonetheless, we see better opportunities among our moatier payroll and HCM coverage.

We are initiating coverage of Paycor HCM with a $26 fair value estimate and no-moat and very high uncertainty ratings. Paycor provides payroll and human capital management solutions to small and midsize clients in the United States via a software-as-a-service model. It is well positioned to take share of the expansive and highly fragmented small- and midsize-business payroll and HCM market through industry consolidation and rising demand for sophisticated HCM solutions. We assume the primary share donors will be in-house and regional solutions that dominate this market but lack the product depth and breadth to meet evolving payroll and HCM needs. The shares currently trade about in line with our valuation.

Paycor HCM is well positioned to take share in the expansive and highly fragmented small- and midsize-business payroll and human capital management market through industry consolidation and rising demand for sophisticated HCM solutions. At present, most of the small-business market is serviced by regional providers or do-it-yourself solutions such as Intuit QuickBooks or Microsoft Excel, creating meaningful scope for greater penetration by functionality-rich providers like Paycor.