Analyst Note| Nupur Balain |
Narrow-moat Paycom Software reported decent first-quarter results which largely matched our expectations on a top-line basis as pandemic-related employment trends continue to impact Paycom's results, though results surpassed expectations from a bottom-line perspective. We are raising our fair value estimate to $343 from $338 on the back of a stronger outlook for fiscal 2021 as the economy recovers, and we see shares as fairly valued at the moment. With a strong vaccine distribution effort in the U.S. and signs of recovery in the labor market, we expect Paycom to see faster growth in coming quarters since the firm charges customers on a per-employee-per-year basis. In spite of pandemic headwinds, Paycom still exhibited healthy growth, which is reflective of the strength of its payroll offering. With its focus on companies with 50 to 5,000 employees and increasing upstream penetration as the firm rolls out new modules, we expect Paycom to expand client count (particularly with larger firms) and see healthy future growth.