Analyst Note| Brian Colello, CPA |
Narrow-moat Paycom Software reported great second-quarter results, handily beating our estimates on both the top and bottom lines. We are raising our fair value estimate to $378 from $343 on the back of a more robust outlook for the second half of fiscal 2021 and an expected customer mix shift to enterprise clients. On the top line, with a strong vaccination drive coupled with a strong labor market recovery, we are modeling stronger-than-expected near-term growth for Paycom. The recovery in the labor market is of particular importance as Paycom, much like other businesses in the human capital management space, charges customers on a per-employee-per-year basis. While we think Paycom has a long runway for growth and increasing upstream penetration, we believe the market has factored in even greener pastures. As a result, we view the shares as marginally overvalued at current levels.