Paycom Earnings: Elevated Uncertainty Amid Strategic Reset, but Shares Attractive

We maintain our $260 fair value estimate and Very High Morningstar Uncertainty Rating for narrow-moat Paycom following the release of first-quarter results that track our full-year expectations. Despite comfortably beating FactSet consensus earnings estimates, Paycom shares tanked more than 10% intraday after the release. We believe there is general investor unease about the firm’s growth prospects, given revenue cannibalization woes. This was amplified by vague management commentary on strategic initiatives to drive greater product adoption and fend off client attrition. While operating uncertainty is elevated, we believe Paycom's unchanged near-term guidance is achievable, and we view the shares as attractive on a risk-adjusted basis relative to our valuation.