Paychex, Inc. (NASDAQ:PAYX) reported its Q4 and full-year 2025 results, revealing a 2% decline in diluted earnings per share to $4.58, primarily due to Paycor acquisition costs.
ROCHESTER, NY – Paychex, Inc., a leading provider of human capital management (HCM) solutions, released its fourth quarter and fiscal year 2025 financial results on June 25, 2025, showcasing a blend of challenges and optimism. The company reported a 2% decline in full-year diluted earnings per share (EPS) to $4.58 from $4.67 in 2024, and a 22% drop in Q4 EPS to $0.82 from $1.05. The earnings decline was primarily attributed to significant acquisition-related costs stemming from the integration of Paycor HCM, Inc., alongside increased interest expenses and the discontinuation of the Employee Retention Tax Credit (ERTC) program. Despite these headwinds, Paychex delivered double-digit revenue growth in Q4 and issued a strong fiscal 2026 outlook, signaling confidence in its strategic direction. A valuation analysis using the Buffett and McGrew methods suggests the stock is currently a “Hold” at its recent trading price of $139.46.
Financial Performance Overview
For fiscal 2025, ending May 31, 2025, Paychex reported total revenue of $5.57 billion, a 6% increase from $5.28 billion in 2024. Fourth quarter revenue reached $1.43 billion, up 10% year-over-year, driven by the Paycor acquisition and higher revenue per client from price realization and product penetration in HR Solutions and Retirement. Management Solutions revenue grew 12% to $1.04 billion in Q4, while Professional Employer Organization (PEO) and Insurance Solutions revenue increased 4% to $340.3 million. Interest on funds held for clients rose 18% to $45.2 million, reflecting contributions from Paycor.
However, profitability faced pressures. Operating income for fiscal 2025 grew modestly by 2% to $2.21 billion, but Q4 operating income fell 11% to $431.1 million, resulting in a Q4 operating margin of 30.2%, down from 37.2% in 2024. The decline was largely due to $145.6 million in Q4 acquisition-related costs, including amortization of intangibles, compensation expenses, and professional fees tied to Paycor. Interest expense surged to $63.7 million in Q4, up $54.2 million, driven by debt issued to finance the acquisition. Net income for the year was $1.66 billion, down 2% from $1.69 billion, with Q4 net income dropping 22% to $297.2 million. Adjusted diluted EPS, excluding acquisition costs, rose 6% to $4.98 for the year, highlighting underlying operational strength.
Management Outlook for Fiscal 2026
Paychex’s management expressed confidence in its future, issuing a robust outlook for fiscal 2026. The company anticipates total revenue growth of 16.5% to 18.5%, driven by the continued integration of Paycor, which expands its upmarket capabilities and total addressable market. Adjusted diluted EPS is expected to grow 8.5% to 10.5%, signaling a recovery from 2025’s earnings dip. Management Solutions revenue is projected to surge 20.0% to 22.0%, fueled by Paycor synergies and increased product penetration, while PEO and Insurance Solutions revenue is forecasted to grow 6.0% to 8.0%. Interest on funds held for clients is expected to range between $190 million and $200 million, and the adjusted operating margin is targeted at approximately 43%, reflecting strong profitability despite integration challenges.
John Gibson, President and CEO, emphasized the company’s strategic progress, stating, “The successful completion of the Paycor acquisition and significant progress on integration position Paychex better than ever for continued success in the digital and AI-driven era of HCM.” Investments in artificial intelligence, technology, and customer experience are expected to drive client retention and revenue growth, reinforcing Paychex’s industry-leading position.
Valuation Analysis
Using the Buffett and McGrew valuation methods, analysts assessed Paychex’s intrinsic value based on five years of free cash flow (FCF) data from 2020 to 2025, with 2025 FCF estimated at $1.78 billion. The 5-year FCF compound annual growth rate (CAGR) of 6.27% classified Paychex as a stable stock, warranting a 5% growth rate for years 1–10, a 2.5% perpetual growth rate, and an 8% discount rate. Both valuation methods yielded an intrinsic value per share of $106.46, with a 25% margin of safety price of $79.85. Compared to the stock’s closing price of $139.46 on June 24, 2025, the stock is 31.01% above its intrinsic value, earning a “Hold” status.
Valuation Table
| Stock Ticker | Valuation Method | Intrinsic Value per Share | Price with 25% Margin of Safety | Last Closing Price | Valuation Status |
|---|---|---|---|---|---|
| PAYX | Buffett Valuation | $106.46 | $79.85 | $139.46 | Hold |
| PAYX | McGrew Valuation | $106.46 | $79.85 | $139.46 | Hold |
Financial Health and Strategic Moves
Paychex maintained a strong financial position, with $1.7 billion in cash, restricted cash, and corporate investments as of May 31, 2025. Cash flow from operations was $2.0 billion for the year, though investing activities consumed $3.7 billion, primarily for the Paycor acquisition. The company returned significant capital to shareholders, paying $1.4 billion in dividends (a payout ratio of 87%) and repurchasing 828,855 shares for $104.0 million.
The Paycor acquisition, completed in fiscal 2025, is a cornerstone of Paychex’s growth strategy. It enhances the company’s capabilities in the upper market segment, expands its partner network, and opens cross-selling opportunities. Management anticipates cost and revenue synergies will drive long-term value, despite short-term earnings pressure from integration costs.
Return on Capital Metrics
For the TTM period ending May 31, 2025, Paychex reported a Return on Equity (ROE) of 41.80%, reflecting efficient use of shareholder capital. Return on Tangible Assets (ROTA) was 18.01%, indicating solid profitability relative to assets excluding intangibles and goodwill, which increased significantly due to Paycor. These metrics underscore Paychex’s operational strength, even amidst acquisition-related challenges.
Risks and Considerations
The earnings release highlighted several risks that could impact the 2026 outlook, including macroeconomic uncertainties, integration challenges with Paycor, cybersecurity threats, and regulatory changes affecting tax withholding. Investors should monitor these factors, as they could influence Paychex’s ability to achieve its projected growth.
Paychex, Inc.’s fiscal 2025 results reflect a transitional year marked by a modest earnings decline driven by Paycor acquisition costs, but the company’s 10% Q4 revenue growth and strong fiscal 2026 outlook signal a promising trajectory. With a projected revenue surge of 16.5% to 18.5% and an adjusted EPS growth of 8.5% to 10.5%, Paychex is well-positioned to capitalize on its expanded capabilities and technological investments. The stock’s current valuation suggests a “Hold” status, but its robust fundamentals and strategic initiatives make it a compelling watch for long-term investors.
#Paychex #Earnings #Q42025 #StockValuation #PAYX #Paycor #Investing #Finance #NASDAQ #Buffett
