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Saturday, November 3, 2007

Stock Analysis: PAYX

Linked here is a PDF copy of my analysis of Paychex, Inc. (PAYX). Last week I initiated a position in this stock. Below are some highlights from the above linked analysis:

Company Description: Paychex, Inc. provides payroll and integrated human resource and employee benefits outsourcing solutions for small- to medium-sized businesses in the United States.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. PAYX is trading at a discount to three of the four valuations above. If you average the middle two valuations, it is trading at a 17.1% discount. PAYX gets a Star for being fair valued.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. PAYX earned Stars in 1.), 2.) and 4.) above.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of the dividend stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. PAYX earned a Star for 1.) above.

Conclusion: PAYX earned one Star in the Fair Value section, three Stars in the Dividend Analytical Data section and one Star in the Dividend Income vs. MMA section for a total of Five Stars which rates it as a 5-Star Strong Buy.

Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I own shares of PAYX.

What are your thoughts on PAYX?


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