- Cloud-based company Paychex, Inc. is a market leader offering human resources and outsourcing services in the United States and Europe.
- Paychex will have to invest significantly in its Paychex Flex platform in order to obtain the sales growth that I expect in the best-case scenario.
- In my opinion, new developments in artificial intelligence and acquisitions of other professional employer organizations will mostly bring sales growth and FCF generation.
- I assumed sales growth of 7% from 2022 to 2026 with CFO/Sales of 33%-35%. The free cash flow would increase from $1.3 billion to more than $1.7 billion.
- With a beta of 0.95-1.05, cost of equity of 6.7%-7.7%, and average interest rate of 4.2%, I assumed a WACC of 6.4%. In my view, most investors would be using a WACC of 6.8%-7.8%, but I want to be a bit conservative with my assumptions.
For further details see:
With New Investment In Technologies, Paychex Is Worth 35% More