PAYX — Paychex Inc
Snapshot dated September 29, 2026.
Paychex, Inc. operates as a provider of integrated human capital management solutions, primarily targeting small to medium-sized businesses in the United States. Its core business centers on payroll processing services, which serves as the anchor for an ecosystem including human resources, insurance, benefits administration, and retirement services. The company generates revenue primarily through recurring fees for these services, scaling its offerings as its client base grows or adopts additional modules like time and attendance or talent management software. Paychex maintains a massive client footprint, serving hundreds of thousands of businesses and supporting millions of employees on its digital platform. It functions as a specialized administrative infrastructure provider, competing against major HCM software platforms like ADP as well as local payroll bureaus. Recently, the company has emphasized the integration of artificial intelligence and machine learning into its proprietary cloud-based Flex platform to automate compliance and administrative tasks for its human resources clients.
Fair Value / Share
$124.46
Price on September 29, 2026
$99.06
Upside to fair value
25.64%
Margin of safety 20.4%
Upside is measured against what you pay; margin of safety is measured against what the business is worth.
Data by Equibles and SEC filings. Figures are as of September 29, 2026 and are not live.
Earnings Yield
Earnings Yield shows how much profit a company generates relative to its share price. EPS ÷ Stock Price.
Stock Price
$99.06
Market Cap
$35,323,013,000
Net Income (TTM)
$1,806,000,000
Diluted Shares
356.6 million
EPS (TTM)
$5.06
Earnings Yield
5.11%
AI Analysis
Paychex currently shows an earnings yield of 5.11%, a figure derived from its EPS of $5.06 and a stock price of $99.06. This yield sits slightly above the 4-5% return benchmark available from safe, guaranteed alternatives like bonds. Mechanically, this indicates that for every dollar of the company's current annual earnings, the market is pricing the shares such that the investor receives a return just past that bond-equivalent baseline. If the company's earnings grow while the price remains stagnant, the earnings yield would rise; conversely, if the share price increases relative to flat earnings, the yield would compress. This single measure captures the relationship between current price and current earnings power, but it does not account for debt levels, capital expenditure requirements, or future growth variability.
Return on Capital
EBIT ÷ (Net Working Capital + Net Fixed Assets) — how efficiently the business turns capital into profit.
EBIT (TTM)
$2,587,800,000
Net Working Capital
$1,152,700,000
Net Fixed Assets
$614,600,000
Invested Capital
$1,767,300,000
Return on Capital
146.43%
AI Analysis
Paychex generates a Return on Capital of 146.43%. This figure is derived from the company’s EBIT of $2.6B divided by its invested capital of $1.8B, which is the sum of its $1.2B in net working capital and $614.6M in net fixed assets. This result sits well above the 30% benchmark used by this framework to denote efficient capital utilization. A return of this magnitude indicates that the business generates significant operating profit relative to the tangible capital required to sustain its operations. This measure relies on historical accounting data and does not capture future growth potential or the ongoing capital expenditures required to maintain that specific level of efficiency. Should Paychex increase its property, plant, or equipment spending, or if its operating profit margins contract, this return on capital percentage would decrease, reflecting a shift in capital intensity or operating performance.
Acquirer's Multiple
Enterprise Value ÷ Operating Earnings — how many years of operating earnings it would take to buy the whole business.
| Company | Operating earnings | Enterprise value | Multiple |
|---|---|---|---|
| PAYXPaychex Inc | $2.6B | $39.3B | 15.2x |
| ADPAutomatic Data Processing Inc | $6.2B | $105.4B | 17.0x |
| PCTYPaylocity Holding Corp | $386M | $7.5B | 19.4x |
Where PAYX sits: 15.2x against a peer median of 18.2x (peers: 17.0x and 19.4x) — 16.7% below the median.
Show the enterprise value bridge for each companyHide the enterprise value bridge
PAYX
Debt $4.6B. This is the company's reported total debt — borrowings due within a year plus long-term borrowings. The company separately reports $62.9M of operating lease liabilities as of 2026-08-31. These are excluded from debt because operating lease cost already sits inside operating earnings — counting the liability again as debt would charge the business twice for the same thing.
ADP
Named as a competitor: Direct competitor in payroll, HR, and human capital management software for small to mid-sized businesses
Debt $5.0B. This is the company's reported total debt — borrowings due within a year plus long-term borrowings. The company separately reports $410.3M of operating lease liabilities as of 2026-06-30 ($306.7M non-current, $103.6M current). These are excluded from debt because operating lease cost already sits inside operating earnings — counting the liability again as debt would charge the business twice for the same thing.
PCTY
Named as a competitor: Competes in cloud-based payroll and human capital management software for mid-market clients
Debt $81.3M. This is the company's reported total debt — borrowings due within a year plus long-term borrowings. The company separately reports $51.7M of operating lease liabilities as of 2026-06-30 ($42.2M non-current, $9.5M current). These are excluded from debt because operating lease cost already sits inside operating earnings — counting the liability again as debt would charge the business twice for the same thing.
Operating earnings — PAYX
AI Analysis
Paychex Inc (PAYX) is measured at an Acquirer's Multiple of 15.2x, derived from an enterprise value of $39.3B and trailing twelve-month operating earnings of $2.6B. Its competitors, ADP and Paylocity (PCTY), exhibit multiples of 17.0x and 19.4x, respectively. Among these three companies, PAYX carries the lowest multiple, while PCTY carries the highest. Comparing the main company's result to its peers, PAYX sits at 15.2x against a peer median of 18.2x, which is 16.7% below the median. This measure compares the price required to acquire the entire business relative to its operating profit; a gap in this comparison could narrow if operating margins for the lower-multiple company expand or if the market adjusts its pricing of the higher-multiple businesses. Note that this framework assumes comparable capital structures and business models, and does not account for differences in growth rates or unique capital-allocation requirements that might justify different multiples.
FS-Score
A 10-check read on financial health, across profitability, balance-sheet stability and operating momentum.
FS-Score
8/10
This company scores high on profitability, stability, and momentum.
Section 1
Current Profitability
3/3
Profitability is Strong as the company passed all three checks, showing positive returns and cash-backed earnings.
- Return on Assets is positive at 10.88%.
- Free Cash Flow to Total Assets is positive at 14.35%.
- Accruals check passed with a 1.45 ratio, meaning Cash Flow from Operations exceeds Net Income.
This score indicates that current operations are generating cash in excess of accounting profits, though a decline in cash flow relative to net income would weaken this result.
Return on Assets (ROA > 0)
PassFree Cash Flow to Total Assets (FCFTA > 0)
PassAccruals (CFO / Net Income > 1)
PassSection 2
Stability
1/3
Stability is Weak, with two out of three checks failing due to a slight increase in long-term debt relative to assets and a decline in the current ratio.
- Leverage rose slightly to 0.28 from 0.27 a year ago.
- Liquidity decreased as the current ratio moved from 1.28 down to 1.26.
- Net Dilution passed as diluted shares outstanding fell to 360.0 million from 362.0 million.
The score reflects a slight increase in reliance on outside capital or debt, which would only reverse if the company reduced its long-term debt or increased its current asset buffer.
Change in Leverage (↓ or unchanged)
FailChange in Liquidity (↑ Current Ratio)
FailNet Dilution (annual diluted weighted-average shares, this year vs last)
PassSection 3
Recent Operational Improvements
4/4
Operational Improvements are Strong, with the company showing year-over-year gains across every efficiency and margin metric measured.
- ROA improved from 10.01% to 10.88% year over year.
- FCFTA increased from 10.32% to 14.35%.
- Gross Margin expanded from 72.35% to 74.29%.
- Asset Turnover moved higher from 0.34 to 0.4.
These results suggest the business is extracting more revenue and profit per dollar of assets than it did last year, provided these margin and turnover trends do not mean-revert.
Change in ROA (↑)
PassChange in FCFTA (↑)
PassChange in Gross Margin (↑)
PassChange in Asset Turnover (↑)
PassFramework conclusion
The total score of 8/10 classifies the company as a financial rockstar, driven by strong profitability and across-the-board operational improvements. This high score suggests that any apparent cheapness in the stock is more likely to be a result of market mispricing than fundamental business deterioration. While the stability section shows some minor pressure on the balance sheet, the primary signals indicate a healthy and improving operation.
- Gross Margin improved to 74.29% from 72.35% last year.
- The Accruals ratio of 1.45 confirms that earnings are supported by robust cash flow.
- Asset Turnover increased to 0.4, indicating more efficient use of the asset base.
- Diluted shares outstanding decreased to 360.0 million, avoiding shareholder dilution.
Intrinsic Value (DCF)
A 10-year discounted cash flow, then the bridge from business value to value per share.
Reported cash flow → unlevered free cash flow
Free Cash Flow (reported)
$2B
+ After-Tax Interest Expense
$202.3M
= Unlevered Free Cash Flow
$2.2B
Business value (10-year DCF)
PV of Years 1–10
$18.8B
PV of Terminal Value
$29.6B
= Business Value
$48.3B
Terminal value share
61.2%
Business value → share value
Intrinsic Value (business)
$48.3B
+ Cash & Equivalents
$600.9M
− Debt
$4.6B
= Shareholders' Value
$44.4B
÷ Diluted Shares
356.6 million
= Fair Value / Share
$124.46
Divided by 356.6 million diluted shares — the weighted-average diluted count from the most recent quarterly income statement, for the quarter ended 2026-08-31.
Risk bucket → discount rate
low (9%)
Year-1 FCF
$2.2B
Trailing twelve months.
FY2024 $1.7B · FY2025 $1.7B · FY2026 $2.3B
Growth rate (yrs 1–10)
7%
Terminal growth (after yr 10)
3%
AI Analysis
Paychex is assigned a low-risk discount rate of 9% based on the predictability of its recurring payroll and HR services revenue. A 7.00% annual growth rate is applied to the fixed Year-1 FCF of $2.2B, reflecting historical trends in client retention and service expansion. The terminal growth rate of 3% is fixed for all companies in this framework rather than being a specific judgment on this business. Because 61.2% of the total business value is derived from the terminal value, this result relies heavily on assumptions about the distant future. To reach the fair value per share of $124.46, the model first adds cash and equivalents of $600.9M to the intrinsic value and subtracts $4.6B in debt before dividing by 356.6 million shares. With a current price of $99.06, the upside to fair value is 25.64%. The estimate includes a margin of safety of 20.4%, which represents the buffer built into the valuation should the forecast prove overly optimistic. The result is most sensitive to the terminal value assumption; if the business’s long-term growth trajectory differs significantly from the fixed 3% rate, the fair value per share would shift substantially regardless of earlier growth.
Overall Verdict
How the five signals above stack up together, then the full synthesis.
Earnings Yield
5.11% vs ~4-5% bond-yield benchmark
Return on Capital
146.43% ROC vs ~30% benchmark
Acquirer's Multiple
15.2x against a peer median of 18.2x (peers: 17.0x and 19.4x) — 16.7% below the median.
FS-Score
8/10 — Financial rockstar
Intrinsic Value
25.64% upside to fair value
The analysis of Paychex rests on a strong operational foundation contrasted with a valuation that sits near benchmark norms. The FS-Score of 8/10 and the exceptionally high return on capital of 146.43% highlight a business model that generates substantial returns on its investments, suggesting robust operational efficiency relative to the 30% benchmark. This is paired with an acquirer's multiple of 15.2x, which tracks 16.7% below the peer median of 18.2x. Meanwhile, the earnings yield of 5.11% sits in a yellow position relative to the 4-5% bond-yield benchmark, indicating that the cash flow return is comparable to risk-free alternatives. There is a 25.64% upside to fair value, with a 20.4% margin of safety. A tension exists between the high quality of operations and the earnings yield, which tracks closer to fixed-income returns than to high-growth targets. If the earnings yield were to rise significantly, it would signal a tighter alignment between the company's price and its internal cash flow generation.
Comments
Notes from readers on PAYX — one each. Comments stay with the company, so they carry across to a later snapshot, and each one shows the date it was written.
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