Option Trade 
Paychex, Inc. (NASDAQ:PAYX) Calls 
Tuesday, 27th September, 2016

** OPTION TRADE: Buy the PAYX JAN 20 2016 60.000 call at approximately $2.00. Place a pre-determined sell at $4.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.80.

by Ian Harvey

September 27, 2016

Paychex, Inc. (NASDAQ: PAYX), is set to report first-quarter fiscal 2017 results on Sep 28. Last quarter, the payroll and human resource solutions provider’s earnings were in line with the Consensus Estimate.

Paychex’s investments in product development and focus on boosting sales force to drive revenues are positive. It is believed that the company’s expansion initiatives, including joint ventures and acquisitions, are in sync with its long-term growth strategy.

One of the key secular growth drivers for Paychex is demand for outsourcing. Human Resource Services outsourcing is a large, less-than-half-penetrated market that offers significant cost-cutting potential. Moreover, growing regulatory burden on small companies underscores the increasing need for outsourcing non-core activities.

The company continues to capitalize on this opportunity by regularly introducing new products and services for up-selling and moving into the mid-market, which should boost results in the to-be-reported quarter.

Going further, there is plenty of optimism that Paychex might witness growth by successfully cross-selling newer products such as Paychex Premier, Major Market Services (MMS) and ancillary HRS products such as 401(k) record keeping, health insurance sales and workers' compensation administration to the existing client base. This strategy is likely to positively impact the company’s fiscal first-quarter results.

This $21 billion payroll services stock is up more than 10% since the calendar flipped to January, rallying thanks to a combination of improving jobs numbers and ongoing interest rate hike drama. At the same time, short sellers have entrenched themselves in this stock pushing its short interest ratio up to 14. That signals nearly three weeks of buying pressure would be needed for shorts to exit their trades out at today's volume levels.

Paychex Inc. has a one year low of $45.55 and a one year high of $61.87. The company’s 50-day moving average is $59.95 and its 200 day moving average is $56.30. The firm has a market capitalization of $21.60 billion, a P/E ratio of 28.67 and a beta of 0.82.

Analyst Input

Morgan Stanley reaffirmed an “underweight” rating and issued a $49.00 target price on shares of Paychex in a research report on Tuesday, August 23rd.

Zacks Investment Research raised shares of Paychex from a “hold” rating to a “buy” rating and set a $61.00 target price for the company in a research report on Thursday, June 2nd.

Also, several other equities research analysts have recently commented on the company.

• Sanford C. Bernstein reaffirmed an “underperform” rating and issued a $52.00 target price (up from $40.00) on shares of Paychex in a research report on Tuesday, July 12th.

• Jefferies Group reaffirmed an “underperform” rating and issued a $40.00 target price on shares of Paychex in a research report on Tuesday, July 5th.

• Finally, Deutsche Bank AG reaffirmed a “hold” rating and issued a $56.00 target price (up from $51.00) on shares of Paychex in a research report on Wednesday, July 6th.

Seven research analysts have rated the stock with a sell rating, six have issued a hold rating and two have issued a buy rating to the company’s stock. Paychex presently has a consensus rating of “Hold” and a consensus price target of $54.00.

Harvey’s Options Volatility Indicator

Conclusion

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the PAYX JAN 20 2016 60.000 call at approximately $2.00. Place a pre-determined sell at $4.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.80.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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