Paycom Earnings: Firm Posts Mixed Results Amid Module Conversion Headwinds

We lower our fair value estimate for narrow-moat Paycom to $370 from $388 per share following the release of mixed second-quarter results. While top-line growth and updated fiscal 2023 guidance broadly tracks our forecasts, the near-term profitability outlook disappointed due to slower-than-expected conversion to Paycom's flagship self-service payroll solution, Beti. We suspect constrained budgets and elongated approval processes at existing clients amid uncertain macroeconomic conditions is hindering Paycom's conversion efforts despite an attractive value proposition. However, in our view, the market is overacting to these cyclical headwinds, with shares falling sharply post-release, creating an opportunity for investors to purchase Paycom shares at a discount to our updated valuation.