Citi analysts reaffirmed a Neutral rating and a $145 price target on Paychex (NASDAQ:PAYX) after the company delivered largely in-line Q1 revenue results, easing concerns over potential softness due to weaker small and medium-sized business (SMB) hiring trends.
The company’s $0.04 EPS beat compared to consensus estimates was driven by margin outperformance and slightly better tax outcomes. The analysts highlighted Paychex’s strong execution, particularly with the introduction of new AI features enhancing product penetration.
While the stock’s post-earnings move was justified, supported by elevated short interest and easing Employee Retention Tax Credit (ERTC) headwinds, the analysts remain cautious about potential risks to multiple expansion. Concerns about possible softness in SMB hiring and expectations for dividend growth aligning more closely with EPS growth over the next 1-2 years also tempered enthusiasm.