Paychex lifts PEO outlook after first-quarter earnings beat

Paychex Inc. (PAYX) raised its fiscal 2027 revenue growth forecast for its Professional Employer Organization (PEO) and Insurance Solutions segment to 7% to 8%, up from the prior outlook of 6% to 7%, following a first-quarter report where earnings and revenues exceeded Zacks Consensus Estimates.

The company reported adjusted earnings of $1.34 per share for the fiscal first quarter, a 9.8% year-over-year increase that slightly surpassed the Zacks Consensus Estimate of $1.33. Total revenues rose 5.9% to $1.63 billion, topping the consensus mark of $1.62 billion. Management Solutions revenues increased 4% year over year to $1.21 billion, driven by higher revenues per client, while PEO and Insurance Solutions revenues climbed 12% year over year to $367.6 million.

The growth in the PEO segment was primarily attributed to an increase in average worksite employees and higher PEO insurance volumes. Interest on funds held for clients also contributed to revenue growth, rising 5% year over year to $49.8 million due to higher average interest rates. Total expenses increased 1% year over year to $1.01 billion, a slower pace than revenue growth, which helped lift the operating margin to 38% from 35.2% in the prior-year period. Adjusted operating margin improved to 42% from 40.7%.

Profitability strengthened across the board, with net income rising 12% to $429.7 million and GAAP earnings per share climbing 14% to $1.21. Acquisition-related costs fell to $65.5 million from $84.8 million a year earlier, including $56.9 million in amortization tied to the Paycor acquisition. Cash flow from operations declined 42.4% year over year to $413.5 million, and the company paid out $424.1 million in dividends during the quarter.

As of August 31, 2026, Paychex reported cash, restricted cash and total corporate investments of $1 billion against long-term borrowings of $4.6 billion and total assets of $15.66 billion. The company continued to expand its WISE artificial intelligence platform, launching WISE Hire as an agentic recruiting solution and embedding AI-enabled automation across its human capital management platforms.

For the full fiscal year 2027, Paychex maintains expectations for total revenue growth of 5% to 6% and Management Solutions revenue growth of 5% to 6%. The adjusted operating margin forecast remains at about 44%, and adjusted earnings growth is projected at 7% to 9%. Interest on funds held for clients is now expected to be between $200 million and $210 million, up from the previous range.

Despite the recent positive stock performance, which saw shares add about 17% in the month following the last earnings report, Zacks Investment Research notes that estimates have trended downward over the past month. The stock currently holds a Zacks Rank #3 (Hold), with an aggregate VGM Score of D, indicating a subpar growth score and a middling value score.