Cramer Sees Paychex Earnings Momentum Despite Slowing Growth Outlook

Jim Cramer expects Paychex, Inc. (NASDAQ: PAYX) to report its upcoming fiscal first-quarter 2027 results with strong momentum, a view he articulated during the September 18 episode of Mad Money. The host characterized Paychex and Cintas as small and medium-sized business staples that remain resilient despite initial Federal Reserve rate hikes.

Paychex is scheduled to release its fiscal first-quarter 2027 earnings on September 23. The company’s fiscal 2026 performance showed revenue rising 17% to $6.51 billion, while adjusted diluted earnings per share increased 11% to $5.51. Management projects a significant slowdown in growth for fiscal 2027, with total revenue expected to increase only 5% to 6%. Adjusted EPS growth is likewise projected to decelerate to a range of 7% to 9%. This divergence is largely driven by the Paycor acquisition, which contributed approximately 12 percentage points to fiscal 2026 total revenue growth. Excluding this one-time boost, the underlying revenue comparison for the coming year is closer to the stated targets.

Labor market data from Paychex indicates stable conditions for its client base. The Small Business Jobs Index stood at 99.13 in August, aligning with the 2026 year-to-date average. Weekly hours worked increased for a sixth consecutive month, while hourly earnings rose 2.89% and weekly earnings climbed 3%. This index is derived from payroll data provided by approximately 350,000 Paychex clients with fewer than 50 employees.

Financial costs associated with the Paycor deal are impacting the company's bottom line. Fiscal 2026 interest expense jumped to $269.5 million from $105.4 million in the prior period, a change Paychex attributes primarily to debt financing for the acquisition. Looking ahead to fiscal 2027, interest earned on funds held for clients is expected to decline to between $195 million and $205 million, down from $210.9 million in fiscal 2026.

Investor positioning has shifted in the second quarter. According to Insider Monkey data, which tracks over 1,000 hedge funds, 40 funds held Paychex shares as of June 30, down from 43 in the previous quarter. Millennium Management emerged as the largest shareholder among these funds after increasing its position by 106% to approximately 2.33 million shares. Market sentiment is also reflected in short interest, with approximately 5.8% to 6.4% of Paychex's float sold short as of August 31.

The September 23 report will clarify whether Paychex can sustain its Management Solutions growth trajectory and meet its revised fiscal 2027 targets for revenue and earnings.