Paychex, Inc.PAYXNASDAQ

Overview Intelligence Charts News Fundamentals DCF Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Buy

Fair Value: $114.05 per share(market-calibrated)

+22.3%

Upside to Fair Value

Current

$93.27

Pure Model

$115.79

Fair Value

$114.05

Bull Case

$143.74

Bear Case

$92.14

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

1.21%

Calibrated Growth

1.99%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $115.79.

What's Driving This Ratingfor PAYX

✓

CapEx already efficient

CapEx at 2.67% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 40.04% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

⚠

Analyst growth decelerates sharply

Revenue growth drops from 16.64% in Year 1 to 2.25% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

🎯

Market pricing in lower growth than model

The market implies only 1.21% perpetual growth — 104bps below the model's 2.25%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 71.37% indicates efficient cash generation. FCF reaches $2.7B by Year 10 (31.00% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.89

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.50%

Cost of Debt

Pre-tax Cost of Debt1.00%

Tax Rate23.83%

After-tax Cost of Debt0.76%

Equity Weight (E/V)86.99%

Debt Weight (D/V)13.01%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (86.99% × 8.50%) + (13.01% × 0.76%)

= 7.49%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$6.5B	$7.3B	$7.7B	$8.1B	$8.6B
EBIT	$2.6B	$2.9B	$3.1B	$3.2B	$3.5B
Tax	$620M	$693M	$737M	$771M	$824M
NOPAT	$2.0B	$2.2B	$2.4B	$2.5B	$2.6B
+ Depreciation	$221M	$247M	$262M	$274M	$293M
- Capex	$173M	$194M	$206M	$216M	$230M
- Δ NWC	$95M	$40M	$17M	$18M	$19M
Free Cash Flow	$1.9B	$2.2B	$2.4B	$2.5B	$2.7B
Discount Factor	0.930	0.805	0.697	0.603	0.486
Present Value	$1.8B	$1.8B	$1.7B	$1.5B	$1.3B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.7B

Terminal Growth Rate2.25%

WACC7.49%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$52.2B

PV of Terminal Value$25.4B

Exit Multiple Method

Year 10 EBITDA$3.8B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$67.5B

PV of Terminal Value$32.8B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$16.0B

PV of Terminal Value$25.4B

Enterprise Value$41.4B

(-) Net Debt$3.4B

Equity Value$38.0B

Shares Outstanding360M

Price per Share$105.49

Exit Multiple Method

PV of Projected FCFs$16.0B

PV of Terminal Value$32.8B

Enterprise Value$48.8B

(-) Net Debt$3.4B

Equity Value$45.4B

Shares Outstanding360M

Price per Share$126.09

Pure Model Fair Value

$115.79

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
5.49%	$146.59	$153.83	$163.30	$176.23	$194.93
6.49%	$125.54	$129.79	$135.04	$141.69	$150.39
7.49%	$109.86	$112.57	$115.79	$119.70	$124.52
8.49%	$97.49	$99.32	$101.44	$103.93	$106.90
9.49%	$87.37	$88.65	$90.12	$91.80	$93.76

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$92.14

-1.2% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.11

Base Case

$115.79

24.1% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 0.89

Bull Case

$143.74

54.1% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.75

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth16.64%

Year 3 Revenue Growth5.73%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin40.04%

Tax Rate23.83%

Historical Capex / Rev2.67%

NWC / Revenue10.20%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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