DCF Studio

    PAYX · NMS · Technology

    Paychex, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 100.35

    Market price

    USD 116.14

    Implied upside

    -13.6%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Value Per Share

    Perpetuity growth
    USD 100.35-13.6%
    Exit multiple
    USD 139.97+20.5%
    Market price
    USD 116.14

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 7.1bnUSD 7.8bnUSD 8.5bnUSD 9.2bnUSD 10.1bn+9.2%
    EBITUSD 2.8bnUSD 3.1bnUSD 3.4bnUSD 3.7bnUSD 4.0bn+9.2%
    NOPATUSD 2.2bnUSD 2.5bnUSD 2.7bnUSD 2.9bnUSD 3.2bn+9.2%
    Add depreciation & amortisationUSD 309.7mUSD 338.0mUSD 369.0mUSD 402.8mUSD 439.6m+9.2%
    Less capital expenditureUSD -230.4mUSD -251.5mUSD -274.5mUSD -299.6mUSD -327.0m+9.2%
    Less increase in working capitalUSD -596.2mUSD -650.7mUSD -710.3mUSD -775.3mUSD -846.3m+9.2%
    Free cashflow to firmUSD 1.7bnUSD 1.9bnUSD 2.1bnUSD 2.2bnUSD 2.5bn+9.2%
    Discount factor0.95670.87570.80150.73370.6715-
    Present valueUSD 1.7bnUSD 1.7bnUSD 1.7bnUSD 1.6bnUSD 1.6bn-0.1%
    Present Value Of The ForecastUSD 8.3bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.871Reported 0.808, pulled toward 1.0 (Blume)
    Cost of equity9.79%Risk-free + beta x equity risk premium
    Cost of debt5.60%Interest expense / average total debt
    Market capitalisationUSD 41.3bn90.0% of capital
    Total debtUSD 4.6bn10.0% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.25%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 100.35

    79% of EV

    Forecast FCFF, final year
    USD 2.5bn
    Capex at depreciation, working capital in reinvestment
    USD 3.3bn
    Less reinvestment at g/ROIC (8.2% of NOPAT)
    USD -274.1m
    Capitalised
    USD 3.1bn
    ROIC (reported)
    30.6%
    Terminal value, undiscounted
    USD 46.7bn
    Terminal value, discounted
    USD 31.4bn
    Enterprise value
    USD 39.6bn
    Less net debt
    USD 3.5bn
    Equity value
    USD 36.1bn

    Exit at 15.2x EBITDA

    Value per shareUSD 139.97

    85% of EV

    Terminal value, undiscounted
    USD 67.9bn
    Terminal value, discounted
    USD 45.6bn
    Enterprise value
    USD 53.9bn
    Less net debt
    USD 3.5bn
    Equity value
    USD 50.4bn

    Spread between methods: 33%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    7.25%128.29137.59148.83162.69180.21
    8.25%106.89113.09120.35128.98139.39
    9.25%91.0695.39100.35106.09112.81
    10.25%78.8882.0285.5689.5694.15
    11.25%69.2471.5874.1777.0780.33

    Outlined: this model. Green text: above today's price of 116.14. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year9.2%13.0%+3.9pp
    EBIT margin40.0%45.6%+5.6pp
    Discount rate9.3%8.4%-0.8pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.