Paychex Earnings: Robust Revenue Retention and Improved Profitability Despite ERTC Headwinds

We maintain our $120 fair value estimate for wide-moat Paychex following the release of reasonable fourth-quarter and full-year fiscal 2024 results that came in marginally short of our above-consensus expectations. Paychex continues to benefit from robust revenue retention indicative of high customer switching costs and improving profitability despite the winding down of high-margin employee retention tax credit, or ERTC, services. We have made minor adjustments to our near-term forecasts to account for updated fiscal-year 2025 guidance, however, this is immaterial to our valuation. Paychex shares fell about 6% after the release toward our unchanged fair value estimate and continue to screen as fairly valued.