Paychex (NASDAQ:PAYX) is preparing to announce its earnings at the close of June. The consensus forecast anticipates earnings of approximately $1.20 per share, an increase from $1.12 in the same quarter last year, while revenues are projected to rise by about 6.5% year-over-year to $1.38 billion. This growth is expected to be fueled by sustained strength in the company’s core Management Solutions and Professional Employer Organization (PEO) services, with operating margins likely trending upward, driven by the application of technology and data analytics, along with improved cross-selling of products.
The company boasts a current market capitalization of $57 billion. Its revenue over the past twelve months was $5.4 billion, operating profitably with $2.3 billion in operating profits and net income of $1.7 billion. Nevertheless, for those seeking upside with less volatility than individual stocks, the Trefis High Quality portfolio offers an alternative, having outperformed the S&P 500 and delivered returns surpassing 91% since its inception.
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Paychex’s Historical Odds of Positive Post-Earnings Return
Here are some insights regarding one-day (1D) post-earnings returns:
- There are 20 earnings data points recorded over the past five years, with 11 positive and 9 negative one-day (1D) returns noted. In summary, positive 1D returns were observed roughly 55% of the time.
- Significantly, this percentage rises to 58% when considering data from the last 3 years instead of 5.
- The median of the 11 positive returns is 3.6%, whereas the median of the 9 negative returns stands at -4.2%
Additional information regarding observed 5-Day (5D) and 21-Day (21D) returns following earnings is compiled along with the statistics in the table below.
Correlation Between 1D, 5D, and 21D Historical Returns
A relatively lower-risk strategy (though not effective if the correlation is weak) involves understanding the relationship between short-term and medium-term returns after earnings, identifying the pair with the highest correlation, and making the appropriate trade. For instance, if 1D and 5D exhibit the highest correlation, a trader can position themselves as “long” for the next 5 days if the 1D post-earnings return is positive. Below is some correlation data based on a 5-year and a 3-year (more recent) history. It is noteworthy that the correlation 1D_5D refers to the correlation between 1D post-earnings returns and subsequent 5D returns.
Discover more about Trefis RV strategy, which has outperformed its all-cap stocks benchmark (a combination of all three: the S&P 500, S&P mid-cap, and Russell 2000), yielding strong returns for investors. Additionally, if you’re seeking upside with a smoother journey than an individual stock like Paychex, consider the High Quality portfolio, which has outperformed the S&P and achieved over 91% returns since its inception.
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