On Monday, TD Cowen upgraded Paycor HCM Inc (NASDAQ: NASDAQ:PYCR) from Hold to Buy and increased the price target to $22 from $18. This decision follows Paycor's recent Investor Day, which bolstered the analyst's confidence in the company's growth prospects and potential to improve its free cash flow (FCF) margin relative to its peers.
The company, currently valued at $3.24 billion, maintains impressive gross profit margins of 66% and has achieved 17.45% revenue growth in the last twelve months. InvestingPro analysis reveals multiple growth indicators, with 12 exclusive ProTips available for subscribers.
The firm noted that Paycor has underperformed compared to its competitors in 2024, with a 27% increase over the last three months and a 16% decline year-to-date, against the 36% and 19% respective performances of its peers. Despite this, the analyst believes that Paycor's emerging embedded human capital management (HCM) business demonstrates promising growth and increasing distinction from competitors like PCTY and PAYC.
According to InvestingPro's Financial Health analysis, the company maintains a "GOOD" overall score, with particularly strong growth metrics. Get access to the comprehensive Pro Research Report for detailed peer comparison and growth analysis.
The upgrade reflects an anticipation of Paycor's shares outperforming its comparison group as the company progresses toward its medium-term objectives. The analyst expects that the market will start to recognize Paycor's risk-reward profile as the most attractive within the Software (ETR:SOWGn) as a Service (SaaS) HCM sector and will begin to appreciate its embedded HCM business as a unique growth opportunity.
TD Cowen's raised price target is based on a 4.3 times multiple of the company's expected enterprise value to sales ratio for the calendar year 2026. The analyst also highlighted Paycor's potential to significantly increase its FCF margins, forecasting an approximate 60% compound annual growth rate in FCF from fiscal year 2024 to 2027, driven by improved sales efficiency. This outlook is described as a non-consensus call, given that only about half of the ratings on Paycor's stock are at Buy since its initial public offering in 2021. Based on InvestingPro's Fair Value analysis, the stock currently appears undervalued, with analyst targets ranging from $15 to $30 per share. Subscribers can access detailed valuation metrics and additional insights through the exclusive Pro Research Report.
In other recent news, Paycor HCM Inc. reported significant revenue growth and increased market demand at the start of fiscal year 2025.
Total (EPA:TTEF) revenue surged by 17%, reaching $167 million, while recurring revenue saw a 16% increase. This positive performance is attributed to Paycor's AI innovations and market expansion efforts, leading the company to raise its revenue guidance for the fiscal year.
In addition, Goldman Sachs (NYSE:GS) adjusted its outlook on Paycor, increasing the price target to $21.00 from the previous $19.00 while maintaining a Neutral rating on the shares. This adjustment comes after Paycor's inaugural Investor Day, where the company presented its achievements since its 2021 IPO and set new goals for the next three to five years.
Other developments include Paycor ending the first quarter with a strong cash position of $98 million and no debt. The company's focus on AI and market expansion initiatives, including the launch of Paycor Assistant and the Paycor Integration Platform, continues to drive growth. Looking ahead, Paycor has raised its revenue guidance for fiscal year 2025 to between $726 million and $733 million, anticipating a 12% revenue growth for the year.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.