PAYCHEX INC (PAYX) DCF Valuation & Fundamental Primer
PAYCHEX INC (PAYX) currently trades at $104.94 with an enterprise value of $30.59B. Our proprietary institutional model rates PAYCHEX INC at 75/100 (Grade: B+ · Quality Software Operator). The current market price prices in an implied 5-year revenue CAGR of 15.7% vs. historical growth of 8.3% (Aggressive Growth Expectations Priced In).
Institutional fundamental teardown of Paychex, Inc. (PAYX) covering SEC 10-K/10-Q cash flow conversion, SBC dilution friction, and Reverse-DCF valuation hurdles.
PAYCHEX INC (PAYX) 3-Scenario DCF Valuation Range
Stress-test PAYX's 5-year growth, target FCF margin, WACC, terminal methodology, and SBC/dilution friction in real time.
Split between 5-Year Explicit Cash Flows and Discounted Terminal Value
2D Institutional Valuation Sensitivity Heatmap
Implied share price & upside/downside spread across 25 valuation states (Current Price: $104.94).
| WACC \ Terminal | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 8.5% | $85.10 -19% | $90.90 -13% | $97.66 -7% | $105.65 +1% | $115.23 +10% |
| 9.3% | $75.63 -28% | $80.20 -24% | $85.44 -19% | $91.52 -13% | $98.65 -6% |
| 10.0% | $67.84 -35% | $71.51 -32% | $75.67 -28% | $80.42 -23% | $85.91 -18% |
| 10.8% | $61.32 -42% | $64.32 -39% | $67.68 -36% | $71.48 -32% | $75.80 -28% |
| 11.5% | $55.78 -47% | $58.27 -44% | $61.03 -42% | $64.12 -39% | $67.60 -36% |
Institutional Software Quality Scorecard (75/100 · Grade B+)
Solid software model with clear operating leverage, partially offset by standard SBC or moderate burn.
Solid cash generation with minor working capital absorption
Minimal dilution friction; management compensation aligned with shareholders
High-quality software margins with healthy balanced growth and profitability
Moderate leverage or cash burn; monitor liquidity runway
Core Investment Strengths & Moats
- Low dilution friction: SBC is only 2.0% of revenue
- Healthy unit economics: 72.4% gross margin
Key Operational & Dilution Risks
Reverse-DCF Solver: What Growth is Priced Into PAYX?
The current share price demands 15.7% 5-year CAGR (16.8% net of SBC & dilution)—a +7.4% acceleration over historical run-rate (8.3%). Any growth slowdown risks valuation multiple contraction.
Headline Reverse-DCF ignores Stock-Based Compensation (2.0% of revenue) and annual share dilution (0.2%/yr). Accounting for both requires 16.8% 5-year revenue CAGR to justify $104.94/sh on a true per-share economic cash flow basis.
PAYCHEX INC (PAYX) 5-Year Fundamental Forecast
| Statement Line Item | TTM Audited Base | TTM | Y1 | Y2 | Y3 | Y4 | Y5 |
|---|---|---|---|---|---|---|---|
| Revenue | $5.57B | $5.57B | $6.03B | $6.53B | $7.07B | $7.65B | $8.29B |
| Gross Profit | $4.03B | $4.03B | $4.36B | $4.72B | $5.11B | $5.54B | $5.99B |
| Operating Income (EBIT) | $2.21B | $2.21B | $2.39B | $2.59B | $2.80B | $3.03B | $3.28B |
| Stock-Based Compensation (SBC) | $111.8M | $112.0M | $121.2M | $131.3M | $142.1M | $153.8M | $166.5M |
| Unlevered Free Cash Flow (FCF) | $1.76B | $1.76B | $1.90B | $2.06B | $2.23B | $2.42B | $2.62B |
| SBC-Adjusted True Cash Flow | $1.65B | $1.65B | $1.78B | $1.93B | $2.09B | $2.26B | $2.45B |
Core Enterprise SaaS & ERP Peer Comparables & Rule of 40 Regression
Rule of 40 vs. EV / Revenue Multiple Regression
OLS Fit: EV/Rev = 7.1 + 0.05 × (Rule of 40) · R² = 12%Stocks below the gold regression line trade at a discount relative to their Rule of 40 compounding efficiency.
| Company | Ticker | Market Cap | TTM Revenue | Gross Margin | FCF Margin | Rule of 40 | SBC % Rev | EV / Rev |
|---|---|---|---|---|---|---|---|---|
| PAYCHEX INC | PAYX | $37.67B | $5.57B | 72.3% | 31.6% | 39.8% | 2.0% | 7.4× |
| ServiceNow | NOW | $152.61B | $10.98B | 79.2% | 31.1% | 54.2% | 15.9% | 13.9× |
| Workday, Inc. | WDAY | $50.35B | $8.00B | 75.0% | 27.4% | 43.9% | 19.0% | 6.4× |
| Oracle | ORCL | $551.08B | $57.40B | 70.5% | -0.7% | 6.5% | 8.1% | 11.4× |
| SAP SE | SAP | $283.05B | $34.18B | 73.0% | 12.9% | 20.5% | — | 8.3× |
| INTUIT INC. | INTU | $173.76B | $18.83B | 80.8% | 32.3% | 46.8% | 10.4% | 9.4× |
| Adobe Inc. | ADBE | $139.24B | $23.77B | 88.6% | 41.5% | 52.1% | 8.2% | 5.9× |
| Peer Cohort Median Benchmark (N=6) | 77.1% | 29.2% | 45.4% | 10.4% | 8.8× | |||
EV / Revenue Multiple Compression Stress Test
| Multiple Scenario | EV / Revenue | Implied Enterprise Value | Implied Equity Value | Implied Share Price | Delta vs Current |
|---|---|---|---|---|---|
| Current Multiple | 7.4× | $41.17B | $37.67B | $104.94 | 0.0% |
| -20% Multiple Compression | 5.9× | $32.94B | $29.44B | $82.00 | -20.0% |
| -35% Multiple Compression | 4.8× | $26.76B | $23.26B | $64.80 | -35.0% |
| Software Baseline Floor (5.0× EV/Rev) | 5.0× | $27.86B | $24.36B | $67.86 | -32.3% |
Frequently Asked Questions: PAYCHEX INC (PAYX) Valuation
What is PAYCHEX INC (PAYX)'s intrinsic DCF valuation and implied share price?
Based on audited SEC 10-K/10-Q filings and a 5-year 3-statement discounted cash flow (DCF) model, PAYCHEX INC (PAYX) has a Base Case implied value of $75.47 per share (with a Bear Case of $36.60 and a Bull Case of $120.91), compared to its current price of $104.94. The model discounts projected free cash flows at a 10.0% WACC and a 2.5% terminal growth rate.
What is PAYCHEX INC (PAYX)'s Rule of 40 score and Free Cash Flow margin?
PAYCHEX INC achieves a Rule of 40 score of 39.8%, combining a 8.3% revenue growth run-rate with a 31.6% TTM free cash flow margin on $5.57B in trailing twelve-month revenue. In the Core Enterprise SaaS & ERP peer cohort, the median Rule of 40 benchmark is 45.4%.
What revenue growth rate is priced into PAYX stock according to Reverse-DCF analysis?
At $104.94 per share (Enterprise Value of $41.17B), our Reverse-DCF solver indicates the market is pricing in a 5-year implied revenue CAGR of 15.7%, compared to PAYCHEX INC's historical CAGR of 8.3%. Overall market expectations are rated as "Aggressive Growth Expectations Priced In".
How does PAYCHEX INC compare to Core Enterprise SaaS & ERP software peers?
PAYCHEX INC (PAYX) earns an institutional Software Quality Score of 75/100 (Grade B+ — Quality Software Operator). Across its Core Enterprise SaaS & ERP peer group (NOW, WDAY, ORCL, SAP, INTU), the cohort trades at a median EV/TTM Revenue multiple of 8.8× and a median gross margin of 77.1%.
How does Stock-Based Compensation (SBC) impact PAYCHEX INC (PAYX)'s valuation?
PAYCHEX INC recorded $111.8M in TTM stock-based compensation (2.0% of revenue). When treating SBC as a cash-equivalent compensation expense, PAYCHEX INC's SBC-adjusted free cash flow yield is 4.4%, scoring 25/25 on our Shareholder Dilution Friction pillar.