The company has earned a 25%+ return on equity over the last 10 years and has grown profits and dividends 13-18% in the same time period. While the weak employment environment will resulted in a slight faltering in earnings over the past two years, PAYX should resume growing profits in 2011 as a result of:
(1) improved demand in the human resources division,
(2) increased sales of ancillary services,
(3) an aggressive cost reduction program.
Negatives:
(1) the company’s client base is not expanding due lack of job creation and business formation,
(2) low interest rates are impacting ‘interest on funds held for clients’.
PAYX is rated A by Value Line, has no debt and its stock yields 3.6%.
Chart
Note: PAYX stock rebounded sharply off its March 2009 low, quickly surpassing the down trend off its July 2007 high (straight red line) and the November 2008 trading high (green line).
Long term PAYX is in a trading range (the blue line is its lower boundary). In early 2010, the stock broke its intermediate term up trend and settled into a trading range (purple lines).
The wiggly red line is its 30 moving average.
The Dividend Growth Portfolio owns a 50% position in PAYX (having Sold a portion of its position when stock broke its up trend in early 2010).
Shares could be Added at current levels; the lower boundary of its Sell Half Range is $42.
http://finance.yahoo.com/q?s=PAYX
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