When Will S&P500 Find Direction?

I’ve heard a lot of technical talk that the S&P 500 could slosh around in this 4,200 to 4,600 range until it finds new direction.

Ukraine is still in the focus

The focus lately has been the war in Ukraine and the Federal Reserve, both of which continue to exacerbate investor uncertainty. While Russia shows no signs of backing off in Ukraine, there hasn’t been too much change on the ground as Putin’s assault seems to have stalled on several fronts.

In fact, some reports indicate Russia has actually lost a bit of ground in some areas. A few military and political experts say they see hopeful signs in a prisoner exchange that Ukraine and Russia conducted this week, though others remain skeptical that Putin is no where ready to strike a peace deal.

Many experts in the space say the biggest worry is with Putin’s army failing to meet his objectives, he could turn to other even more deadly tactics. The U.S. and EU have been more vocal with their warnings to Russia this week that the use of chemical or biological weapons will bring a strong response from the West. No details have been provided on what that might be and officials behind the scenes have said they are being “deliberately ambiguous” in order to keep Putin off-guard.

Can Fed control the inflation?

As for the Fed, fears are again rising that the central bank will not be able to cool inflation without damaging the economy, particularly with the additional challenges the war has created.

Fed watchers will get a slew of new data to chew on next week, including the PCE Pries Index next Thursday, which is one of the Fed’s favorite inflation gauges. The year-over-year rate in January rose to +5.2% from a previous +4.9% and most expect it will rise again in the February read.

With the Russia-Ukraine conflict compounding the raw materials crunch and Covid lockdowns in China showing signs of jamming up supply chains again, whatever the gauge shows next Thursday, it will likely climb higher in the months ahead. Investors get a look at the U.S. labor market next Friday with the March Employment Report. Consensus is calling for a gain of around +500,000 jobs after a gain of over +675,000 in February.

Investors will be focused more on the wage component which came in flat in January. That helped bring the year-over-year rate down a bit but wages were still up more than +5% vs. February 2021.

Wage inflation is very “sticky” so the higher labor costs climb, the more it limits how much price gains can ultimately moderate.

Data to watch

Other data next week includes advance reads on International Trade, Retail Inventories, and Wholesale Inventories on Monday; the S&P Case-Shiller Home Price Index and Consumer Confidence on Tuesday; the ADP Employment Change and final estimate of Q4 GDP on Wednesday; Personal Income and Outlays and Chicago PMI on Thursday; and ISM Manufacturing and Construction Spending on Friday.

On the earnings front, highlights next week include Chewy, Concentrix, Lululemon, and Micron Technology on Tuesday; BioNTech and Paychex on Wednesday; and Walgreens on Thursday. Russia’s war in Ukraine and the Fed’s war against inflation should remain in the spotlight…

The Big Food Worry… There’s no question food-importing nations are going to feel some major pain. In the USA prices at the grocery store more than likely continue even higher. The world is screaming for more acres and more production but supply chain dislocations along with Russia’s war in Ukraine has fertilizer and input prices sky-high and in some nations in extremely short supply.

Big Money Loves Paychex

So, what’s Big Money? Said simply, that’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And Paychex has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the shares have been trading points to more upside. As I’ll show you, the Big Money has been consistent in the shares all year.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all the Big Money signals PAYX has made the last year.

The last few weeks have seen Big Money activity, too. Each green bar signals big trading volumes as the stock ramped in price:

Source: www.mapsignals.com

In 2021, the stock has attracted 14 Big Money buy signals. Generally speaking, recent green bars could mean more upside is ahead.

Now, let’s check out technical action grabbing my attention:

Outperformance is important for leading stocks.

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, Paychex has been growing sales and earnings. Take a look:

  • 1-year sales growth rate (+9.0%)
  • 3-year earnings growth rate (+5.6%)

Source: FactSet

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, PAYX has been a top-rated stock at my research firm, MAPsignals, for years. That means the stock has buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

PAYX has a lot of qualities that are attracting Big Money. And since 2015, it’s made this list 7 times, with its first appearance on 10/13/2015… and gaining 169.67% since. The blue bars below show the times that Paychex was a top pick since 2015:

Source: www.mapsignals.com

It’s been a top stock in the industrial sector according to the MAPsignals process. I wouldn’t be surprised if PAYX makes additional appearances in the years to come. Let’s tie this all together.

The Bottom Line

The Paychex rally could have further to go. Big Money buying in the shares is signaling to take notice. Shares could be positioned for further upside. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a growth-oriented portfolio.

Disclosure: the author holds no positions in PAYX in personal or managed accounts at the time of publication.

Learn more about the MAPsignals process here.

Disclaimer

https://mapsignals.com/contact/

 

Payroll Provider Paychex Stock Soared to a Record After Q2 Earnings Beat, Revised Outlook

Paychex shares surged over 6%, scaling to a new record high on Wednesday as the payroll services provider lifted its annual revenue and profit forecasts after outperforming expectations in the fiscal second quarter thanks to an increase in employees in its client base.

The Rochester, New York-based company said its second-quarter revenue climbed 13% to $1.11 billion, beating the market expectations of $1.06 billion. The company reported adjusted earnings per share (EPS) of $0.91, also above the Wall Street estimates of $0.79 per share.

Operating income increased 24% to $440.3 million as a result of double-digit revenue growth and a moderate expense increase. Operating margin (operating income as a percentage of total revenue) was 39.7% compared to 36.0% for the prior-year period.

The company, which provides its services to nearly 570,000 clients globally, said in fiscal 2022, revenue is expected to grow between 10% and 11%, up from its previous guidance of an 8% increase. Adjusted diluted earnings per share (EPS) is now predicted to grow in the range of 18% to 20%.

Following this, Paychex stock hit a record high, surging to $134.68 on Wednesday. It soared over 40% so far this year.

Analyst Comments

“Solid 2Q print with revenue and margin outperformance driving 15% EPS beat. Management Solutions strength led (5% ahead) while PEO/Ins also was ahead (~4%). Demand commentary is broadly healthy and FY22 guidance raised modestly more than 2Q beats with revised Revenue & EPS ~1% ahead of adj consensus,” noted Bryan C. Bergin, equity analyst at Cowen.

Paychex Stock Price Forecast

Ten analysts who offered stock ratings for Paychex in the last three months forecast the average price in 12 months of $117.10 with a high forecast of $125.00 and a low forecast of $105.00.

The average price target represents a -12.05% change from the last price of $133.15. Of those ten analysts, none rated “Buy”, nine rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $105 with a high of $136 under a bull scenario and $78 under the worst-case scenario. The firm gave an “Equal-weight” rating on the payroll services provider’s stock.

Paychex (PAYX) is a SMID-focused payroll/HCM platform with an increased focus on full-scale HR outsourcing through its growing PEO/Insurance business (both organically and through acquisitions). We see a balanced risk/reward for the shares that currently considers both 1) its push into the solid growth PEO market and more recent focus on margin expansion, and 2) its exposure to the relatively more vulnerable SMB segment and the increasingly difficult competitive environment for SMID HCM providers,” noted James Faucette, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. Citigroup raised the price target to $125 from $121. Credit Suisse lifted the target price to $135 from $125.

Technical analysis suggests it is good to buy now as 100-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Check out FX Empire’s earnings calendar

Earnings to Watch in Holiday-Shortened Week: Micron Technology, Nike, General Mills and CarMax in Focus

The following is a list of earnings slated for release December 20-24, along with a few previews. Although next week’s earnings are unlikely to have much of an effect on major market movements, it is sufficient to gauge investors’ sentiment.

Earnings Calendar For The Week Of December 20

Monday (December 20)

IN THE SPOTLIGHT: MICRON TECHNOLOGY, NIKE

MICRON TECHNOLOGY: The world’s leading semiconductor manufacturer is expected to report its fiscal first-quarter earnings of $2.01 per share, representing year-over-year growth of more than 155% from $0.78 per share seen in the same quarter a year ago.

The Boise Idaho-based semiconductor company is expected to post revenue growth of over 30% to around $7.7 billion from a year earlier. In the last two years, the company has topped expectations on earnings per share at all times.

“While the underlying demand trends are strong and producer inventory levels are low heading into a period of seasonal strength, there are some signs of inventory adjustments short term after customers-built inventory,” noted Joseph Moore, equity analyst at Morgan Stanley.

“We see demand growth on the back of seasonality, memory elasticity/higher content per unit, and low customer inventories, and very slow supply growth in DRAM given declines in capex. We continue to believe that memory stocks have a relatively well-defined earnings cycle, though highs and lows are likely to be better than they have been historically.”

NIKE: The world’s largest athletic footwear and apparel seller is expected to report earnings per share of $0.62 in the fiscal second quarter, which represents a year-over-year decline of over 20% from $0.78 per share seen in the same period a year ago.

The Beaverton, Oregon, footwear retailer would post revenue of $11.23 billion, down about 0.1% from a year earlier. For four quarters in a row, the company has exceeded expectations on earnings per share.

“We are raising our price target to $189 representing 40x our FY23E EPS of $4.73. We don’t believe management will make significant changes to its FY22 guidance but view the business as running above plan in N. America and Europe (EMEA). The gross margin could be a lever to raise back to prior guidance (+150bps at the high end). China is a point of uncertainty with investors and the model,” noted John Kernan, equity analyst at Cowen.

“We are raising our expectations for Q2, largely driven by an incrementally stronger outlook for N.A. and EMEA, with less conviction behind results in Greater China. We now model Q2 revenues +3% y/y ex FX to $11.52B vs consensus of $11.255B, driven by N.A. +2% (+3% vs 2019 compared to Q1’s +14% vs 2019), EMEA +1% (+17% vs 2019compared to Q1’s +19%), Greater China -2%, and APLA +10%.

We forecast gross margin expanding +130bps y/y, as higher full-price selling and DTC mix offsets higher freight costs and some product cost inflation (we include gross margin quarterly bps drivers in Fig 5). On a 2-year stack basis, product costs have deleveraged 240bps or more in each of the last two quarters. We see SG&A dollars growing +10% y/y to 31.1% of revenues (+204bps y/y). Ultimately, this drives EPS of $0.75 vs consensus of $0.63 – we model a 100bps impact from FX.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 20

TICKER COMPANY EPS FORECAST
MU Micron Technology, Inc.(MU) $2.01
NKE NIKE, Inc.(NKE) $0.63
BRZE Braze, Inc.(BRZE) $0.63

Tuesday (December 21)

IN THE SPOTLIGHT: GENERAL MILLS

The Minneapolis Minnesota-based company, General Mills, is expected to report its fiscal second-quarter earnings of $1.05 per share down from $1.06 per share seen in the same period a year ago.

The consumer foods manufacturer’s revenue would decline over 2% year-over-year to around $4.8 billion up from $4.72 billion seen a year earlier. In the last two years, the company has missed earnings per share estimates only once.

“While growth abounded for domestic food manufacturers as consumers rushed to stock up on essential wares as COVID-19 took hold, it hasn’t been a pure panacea for this intensely competitive space. And we think the future trajectory hinges on which of the trends that took centre stage the past few years will hold,” noted Erin Lash, Sector Director at Morningstar.

“In this context, while we concede many consumers honed their cooking skills while sheltering at home, as busy schedules resume, we think food consumption will revert such that a greater portion of budgets is expended outside of the home, in line with pre-pandemic levels. Further, although grocers simplified shelf assortments to maximize productivity during the peak in demand, we think the variety will return as supply chains normalize.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 21

TICKER COMPANY EPS FORECAST
FDS FactSet Research Systems Inc.(FDS) $2.99
GIS General Mills, Inc.(GIS) $1.05
NEOG Neogen Corporation(NEOG) $0.17

Wednesday (December 22)

IN THE SPOTLIGHT: CARMAX

The used-car retailer CarMax is expected to report its fiscal third-quarter earnings of $1.49 per share, which represents year-over-year growth of about 5% from $1.42 per share seen in the same period a year ago.

The Richmond, Virginia-based used car giant would post year-over-year revenue growth of nearly 50% to $7.63 billion in the quarter ended November 2021. In the last two years, the company has exceeded expectations on earnings per share with an average surprise of over 80%.

“Based on historical & current data, we expect to see strength in used car sales as we move forward, particularly given the shortage of new car inventory, manufacturers pulling back on incentives, and potential tailwinds from de-urbanization, mass transit, ride-sharing, and travel. We expect CarMax (KMX) to successfully execute their Omnichannel strategy, providing both online and physical dealer options to consumers,” noted Adam Jonas, equity analyst at Morgan Stanley.

KMX has consistently generated >$2,000 GPU and has one of the strongest balance sheets amongst the dealers. Long term, we estimate strong growth in same-store sales along new store openings, allowing KMX to achieve operating leverage, with upside from the omni-channel rollout.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 22

TICKER COMPANY EPS FORECAST
CTAS Cintas Corporation(CTAS) $2.62
KMX CarMax, Inc.(KMX) $1.5
PAYX Paychex, Inc.(PAYX) $0.79

Thursday (December 23)

No major earnings are scheduled for release.

Friday (December 24)

The New York Stock Exchange and Nasdaq observe Christmas, markets will be closed on Friday.

Payroll-Services Provider Paychex Beats Earnings Estimates; Analysts Raise Target Price

Payroll-services provider Paychex reported better-than-expected earnings in the second quarter of fiscal year 2021 and slightly upgraded its outlook, largely reflecting its improving margin discipline.

The provider of payroll, human resources, insurance, and benefits outsourcing for small and mid-sized businesses said its earnings totalled $272.4 million, or $0.75 per share in the three months ended November 30, up from $258.7 million, or $0.72 per share seen in the same period a year earlier.

Excluding items, Paychex reported adjusted earnings of $264.8 million or $0.73 per share for the period, beating the Wall Street consensus estimate of $0.66 per share. The company’s revenue dipped 0.7% year-over-year to $983.7 million.

“Paychex’s fiscal second-quarter results showed the company holding up fairly well in the current environment, and we think its ability to improve its already ample margins during this period supports our wide moat rating on the firm. We will maintain our $74 per share fair value estimate,” said Brett Horn, senior equity analyst at Morningstar.

“Paychex had taken a one-time charge in the first quarter aimed at efforts to accelerate cost reductions, and that effort, along with the stabilization in revenue, appears to have had a material positive impact. While the cost reductions are likely one-time in nature, we think the margin result reflects well on management and speaks to the resilience of the wide-moat franchise.”

Paychex shares closed 2.31% lower at $94.40 on Wednesday. However, the stock is up over 10% so far this year.

Paychex Stock Price Forecast

Twelve analysts who offered stock ratings for Paychex in the last three months forecast the average price in 12 months at $90.83 with a high forecast of $105.00 and a low forecast of $76.00. The average price target represents a -3.78% decrease from the last price of $94.40. From those 12 equity analysts, four rated “Buy”, seven rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $91 with a high of $112 under a bull scenario and $69 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the payroll provider’s stock.

“We are also raising our price target to $91 from $76, given Paychex’s strong performance versus expectations the last couple of quarters, plus greater investor willingness to value the shares at the higher end (PT-implied P/E multiple of 27x on CY22 EPS) of its typical mid-20s P/E range given a more certain path out of the pandemic and into a robust environment for HCM platforms,” said Steven Wald, equity analyst at Morgan Stanley.

Several other analysts have also recently commented on the stock. Cowen and Company raised the stock price forecast to $96 from $78. Jefferies upped the target price to $95 from $85. Evercore ISI increased their price objective to $78 from $75. Credit Suisse raised the target price to $110 from $95. JP Morgan upped the target price to $90 from $83. Wedbush increased their target price to $105 from $80.

Analyst Comments

“Paychex (PAYX) continues to manage costs effectively and has benefitted from conditions remaining more benign than many feared. While investor confidence is justifiably growing, the near-term road map is still uncertain and execution risk will remain elevated for some time,” Morgan Stanley’s Jonas added.

“Paychex (PAYX) is a SMID-focused payroll/HCM platform with an increased focus on full-scale HR outsourcing through its growing PEO/Insurance business (both organically and through acquisitions). We see a balanced risk/reward for the shares that currently considers both 1) its push into the solid growth PEO market and a more recent focus on margin expansion and 2) its exposure to the relatively more vulnerable SMB segment and the increasingly difficult competitive environment for SMID HCM providers.”

Upside and Downside Risks

Risks to Upside: 1) More resilient economic and job growth, 2) The company maintains its record-level retention rates 3) Delivery of notable positive operating leverage and 4) A more profitable interest rate environment – highlighted by Morgan Stanley.

Risks to Downside: 1) Sustained economic pressure on clients, 2) A faster than expected pickup in HCM competition from peers, and 3) An inability to offset top-line headwinds with expense discipline.

Check out FX Empire’s earnings calendar