Seeking Alpha: Heartland Payment's New Ventures Make Sense, But Mind The Multiples

With the markets up as much as they are over the past two years, it's not so surprising that there are a lot of stories out there along the lines of "it's a good company and they have a good plan, but be careful about the valuation".

Payment processing service provider Heartland Payments (HPY) definitely fits that description for me. I believe the company's direct sales force and uncommon transparency give it an edge in the processing space. Likewise, I believe the company's forays into newer businesses like payroll and education-related processing can generate worthwhile returns. I just question whether there's a lot of loose change left in the couch for a stock that is up more than 100% over the past two years and trading a little rich relative to its growth.

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Heartland Payment's New Ventures Make Sense, But Mind The Multiples

Investopedia: Intuit Refocusing On What It Does Best

A quarter ago, I thought that Intuit (Nasdaq:INTU) was underestimated and underappreciated by the Street. True, the company was (and is) facing challenges in getting the consumer tax business back to better growth and not all of the company's efforts to diversify and grow the business had worked out to plan. But Intuit still has a valuable business with strong market share that produces almost annuity-like cash flow streams. While the shares have outperformed the S&P 500 by about 10% since my last bullish call, I remain confident that there's more to be gained from the company's strategic readjustment.

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Investopedia: Paychex Still Muddling Through

It has been about a year since I last wrote on Paychex (Nasdaq:PAYX). Back in 2012, I suggested that the Fed's actions to stimulate the economy weren't going to have a tremendous impact on employment, nor lead to a big turnaround in Paychex's fortunes. A year later that prediction seems to have worked out, as the company continues to muddle through a weak payroll growth environment in its core small/medium-sized business (SMB) market. While efforts to build up the HR services side of the business should pay off, and payroll will recover at some point, it still would seem that the Street is much too willing to price a strong recovery into these shares.

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http://www.investopedia.com/stock-analysis/062713/paychex-still-muddling-through-payx-intu-orcl-sap.aspx

Investopedia: Can Intuit Get Back Into Wall Street's Good Graces?

For a company to not be taking part in this strong bull market, particularly when its revenue and earnings are growing, tells you something about how the Street views the company. Intuit (Nasdaq:INTU) may have once been a growth stock darling, but those days are past, as investors and analysts appear much more concerned about the company's consumer tax business than its long-term growth potential in small business services. I continue to believe that these shares are undervalued, but investors may have to wait a bit for that value to develop.

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http://www.investopedia.com/stock-analysis/052213/can-intuit-get-back-wall-streets-good-graces-intu-payx-hrb-ctct-et.aspx

Investopedia: Will QE3 Give Paychex More Than it Takes Away?

When you're in the business of processing payrolls for small employers, a weak job market is a definite limitation on growth. Paychex (Nasdaq:PAYX) has been muddling through this period of weak job creation, and now there is a new Federal Reserve stimulus program specifically targeting job growth and employment. It's an open question as to whether this stimulus will succeed, but it's a near-certainty that low rates will continue to pressure Paychex's ability to wring profits from its float. That sets up Paychex for a high-quality but growth-poor play on improved employment, and an expensive one at that.

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Investopedia: Intuit Still Looks Underrated

Even if the long-term plan is sound, confusing the Street can carry real near-term costs. Consequently, I wonder if Intuit's (Nasdaq:INTU) decision to shuffle some of its operations has cost it some valuation. Then again, the stock has been pretty strong this year and is less than 10% of its 52-week high, even though its core small/medium-sized business (SMB) market is not exactly back in full health. Whatever the case may be, I think there is still a valid long-term thesis for buying or holding Intuit shares, and I think the stock looks undervalued relative to its quality.

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http://stocks.investopedia.com/stock-analysis/2012/Intuit-Still-Looks-Underrated--INTU-PAYX-HRB-ORCL0827.aspx

Investopedia: Paychex Still In A Low Gear

A muddle-through economy and a legacy of high valuation continues to weigh on shares of small business payroll and human resource (HR) service provider Paychex (Nasdaq:PAYX). While the large amount of sell-side skepticism on this stock might appeal to investors with a contrarian streak, the lack of growth and momentum are legitimate concerns. Paychex's above-average yield and strong potential for dividend growth makes it a worthwhile hold, but it's hard to get excited about this combination of growth and valuation today.

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http://stocks.investopedia.com/stock-analysis/2012/Paychex-Still-In-A-Low-Gear-PAYX-ADP-IBM-ACN0703.aspx

Investopedia: ADP A-OK ... And Everybody Knows It

As I've said recently in relation to McDonald's (NYSE:MCD), Coca-Cola (NYSE:KO) and Nestle (OTCBB:NSRGY), top-notch companies are a mixed blessing for investors - great to hold for years at a time once you own them, but very hard to ever buy at a notable discount. Automatic Data Processing (Nasdaq:ADP) fits that bill as well, as even the most negative or bearish analysts still seem to go out of their way to affirm their respect for the company, its strategy and management.

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http://stocks.investopedia.com/stock-analysis/2012/ADP-A-OK--And-Everyone-Knows-It-ADP-PAYX-INTU-ATHN0504.aspx

Investopedia: Is Paychex A Small Business Annuity?

Slowly and maybe not entirely surely, business conditions are getting better. That's good news for Paychex (Nasdaq:PAYX), as this company needs a healthy small business environment to continue it growth plans. While results are decent and there are still growth opportunities for the company, oncoming competition and international expansion both look like increasingly relevant factors.

Decent Q3 Results
Paychex reported that revenue rose 7% for the fiscal third quarter, with organic revenue growth of 5%. Payroll services revenue grew 5% (4% organically) as checks-per-client rose almost 2%. HR services rose 12% (10% organic), and the company continues to see good growth in services like employee health and benefits. Earnings from the interest carry continue to be limited by the low rate environment, as the average interest rate fell 30 basis points and interest from client funds declined 7%.

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http://stocks.investopedia.com/stock-analysis/2012/Is-Paychex-A-Small-Business-Annuity-PAYX-ADP-INTU-BAC0330.aspx

Investopedia: Paychex Limping Through The Cycle

Sometimes even strong management teams are handed macro situations that just overwhelm the inherent quality of their business. With new business creation still weak and pronounced sluggishness in small/medium-sized businesses (SMB), there's not much that Paychex (Nasdaq:PAYX) can do right now. Although this remains a quality play on an under-penetrated market that is key to future growth in the U.S. economy, the valuation already bakes in an eventual recovery.

Sluggish Second Quarter Performance  
Although Paychex arguably did a fine job of controlling that which was in their power to control, the second quarter had some definite weakness. Revenue rose less than 7% and missed not only the average analyst guess, but the low end of the range as well. Growth was even weaker (up less than 5%) when excluding the acquisitions of SurePayroll and ePlan.

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http://stocks.investopedia.com/stock-analysis/2011/Paychex-Limping-Through-The-Cycle-PAYX-INTU-NSP-ADP-VPRT1221.aspx

Investopedia: Intuit A Stealth Play On Multiple Growth Markets

Intuit (Nasdaq:INTU) is still, likely, best known for its tax software, and the various small to medium-sized business software packages (like QuickBooks) that it offers. What is not so well-known, though, is that Intuit is actually a large software as a service (SaaS) provider, and a growing player in markets like payroll, payment solutions and bank infrastructure. While Intuit likely suffers a bit from "neither fish nor fowl syndrome," and less impressive growth than cloud computing titans like Salesforce.com (NYSE:CRM) and VMware (NYSE:VMW), this is a surprisingly complicated yet high-return company.

Decent Results in a Slow First Quarter  
For better or worse, Intuit is still at a point in its life cycle where seasonality matters. To that end, this fiscal first quarter, a quarter in which there is little demand for tax software, is a fairly sleepy one. Nevertheless, reported revenue rose 12%, and the company posted a 13% growth in its small business segment, as subscriber growth for products like QuickBooks Online, QuickBooks Enterprise Solutions and online payroll was all quite good.

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http://stocks.investopedia.com/stock-analysis/2011/Intuit-A-Stealth-Play-On-Multiple-Growth-Markets-INTU-HRB-CRM-ORCL-GOOG-MSFT-PAYX-VMW1122.aspx

Investopedia: Intuit's Valuation A Sign Of The Times

Maybe Intuit (Nasdaq:INTU) is a good microcosm for the market and the economy. Business conditions are better, but not great, and that is especially true in the small business category. The market, though, has rewarded the rebound handsomely and so while the stock has been a very strong performer, it is now at a point where valuation, quality and future prospects seem balanced. In other words, the market has certainty caught up to the economy and it looks like there could be more risk than reward if valuations go much further. 

Intuit's Third Quarter Wasn't Taxing  
Intuit delivered respectable fiscal third-quarter results, largely on the back of a solid performance in the consumer tax business (the TurboTax franchise). Total revenue rose 15% in the period, fueled in large part by the 18% growth in consumer tax preparation. The company saw an 11% increase in TurboTax units through tax season, even though H&R Block (NYSE:HRB) held up a lot better than some had expected. Interestingly, for as much talk as there is about Intuit's opportunities in areas like software-as-a-service and mobile apps, the consumer tax business is still about one-third of the company's full-year revenue base. 


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http://stocks.investopedia.com/stock-analysis/2011/Intuits-Valuation-A-Sign-Of-The-Times-INTU-HRB-ADP-PAYX-ORCL-SAP-EBAY0524.aspx

Investopedia: Paychex Puts A Damper On Investor Enthusiasm

There are no perfect metrics for judging the economy, as even widely-watched numbers like GDP and the CPI have their flaws. That leaves a lot of room for reading the tea leaves and using companies in industries like transportation, commodities and business services as proxies for all or part of the economy. 

Payroll services company Paychex (Nasdaq:PAYX) is a case in point. Automatic Data Processing (NYSE:ADP) provides useful data about payroll trends, but this company's client base is geared more towards the larger corporations; Paychex is far more focused on the small/mid-sized business community that employs many workers in the U.S. Looking at these recent results, it is still pretty clear that the recovery in the stock market is running well ahead of the recovery in the economy. (For more, see Inside National Payment Systems.)

Earnings - Good Enough, But Not Great
There is nothing in Paychex's fiscal third quarter results that suggest the economy is in any danger of overheating. Although revenue growth of 5% was slightly better than analysts expected, core payroll services growth was just 2%. The company is seeing some success in cross-selling its other HR services, and this segment showed solid 13% growth. Float earnings continue to be lackluster - earnings from this segment fell 16% on 6% higher average balances as the company continues to muddle through the low rate environment.


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Investopedia: Financial Services That Buffett Could Love

With Berkshire Hathaway's (NYSE:BRK.A) annual report in hand and the recent deal for Lubrizol (NYSE:LZ) still in the news, there is once again a fair bit of interest in speculating on what sorts of companies Warren Buffett would (or does) like. Though specific predictions of Mr. Buffett's moves are more often wrong, there are a handful of non-bank financial services stocks that investors may want to consider with an eye towards their franchise value and difficult-to-replace market niches. (For more, see Emulate Buffett For Fun And Profit - Mostly Profit.)

Making Payroll Services Pay 

Automatic Data Processing (NYSE:ADP) and Paychex (Nasdaq:PAYX) do more than just handle payroll (for large and smaller companies, respectively), but that is their signature business lines. There is a lot here that an investor seeking to emulate Warren Buffett should find attractive. (For more, see Buffett Picks To Coattail.).

This is a recurrent fee-collecting business; people get paid on a regular schedule and these companies can collect a small fee every time they do. It is also a bet on the recovery and prosperity of the country; more jobs means more payroll and more demand for payroll services (and Buffett is a noted optimist on the long-term prospects of the U.S. economy). Last and certainly not least, each company produces a "float" of money, money paid to the companies for payroll but not yet disbursed to employees, that can be profitably invested.

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http://stocks.investopedia.com/stock-analysis/2011/Financial-Services-That-A-Buffett-Could-Love-BRK.A-ADP-PAYX-FNF-FAF-ORI-FDS0317.aspx

Paychex Sees A Slow Road Back

There are plenty of ways in which the U.S. economy is stronger now than it was a year ago, but that does not mean that current conditions make for a rollicking good time. In particular, companies are not yet hiring in a big way, and that is keeping a lid on the recovery of payroll and HR outsourcer Paychex (Nasdaq:PAYX). 

The Quarter That Was
Paychex's fiscal first quarter seems to fit the overall sense of the economy - slight improvement here and there, but nothing close to enough strength to lift the overall sense of gloom (or at least deep concern). Revenue was up 4% (and ahead of expectations), as payroll service revenue rose almost 2% and human resources services-related revenue rose more than 10%. 


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http://stocks.investopedia.com/stock-analysis/2010/Paychex-Sees-A-Slow-Road-Back-PAYX-ADP-ECL-RHI-MAN0929.aspx

Cintas Not Scintillating

These are lousy times to be in the business of providing services to business. Whether you look at payroll and HR service companies like Paychex (Nasdaq:PAYX) and ADP (NYSE:ADP), staffing companies like Manpower (NYSE:MAN), or sanitation service providers like Ecolab (NYSE:ECL), the combination of stagnant employment and cost-cutting has been a headache for almost every player. As the leader provider of uniform rentals in North America, Cintas (Nasdaq:CTAS) is likewise caught up in that malaise. 

The Quarter That Was
All things considered, Cintas likely made the best of a difficult situation in the company's fiscal first quarter. Overall revenue growth exceeded 3%, with organic revenue growth of just under that figure. Although core uniform rental revenue was barely positive, at least it was positive, unlike the negative organic revenue performance in the prior quarter. On the other hand, the company did see solid double-digit growth in both uniform sales and document management.

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http://stocks.investopedia.com/stock-analysis/2010/Cintas-Not-Scintillating-CTAS-PAYX-ADP-MAN-ECL-IRM-TYC0922.aspx

Get Paid To Wait By Paychex

Imagine a business that makes money when companies are hiring and interest rates are at a nice, healthy level. Now imagine how well a business like that might be doing right now. Therein lies the problem with Paychex (Nasdaq:PAYX). Although this provider of HR and payroll services to small-to-mid-size businesses is a fine company with ample growth prospects, the company's stock has been knocked down by a one-two punch outside of its control. 

Low Rates Are Not Good For Everybody
Like its larger competitor Automatic Data Processing (NYSE:ADP), Paychex has traditionally garnered a nice chunk of very high-margin revenue by earning interest on the payroll amounts that it processes for employers. In a nutshell, Paychex requires that client companies transfer funds to them before they must send them on to the employees, creating a "float" that the company can invest in interest-bearing instruments like commercial paper or bonds. While not exactly the same, this float is analogous to the float that Berkshire Hathaway's (NYSE:BRK.A) Warren Buffett often references as a major source of that company's competitive advantage. (For more on this topic, check out Competitive Advantage Counts.)

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http://stocks.investopedia.com/stock-analysis/2010/Get-Paid-To-Wait-By-Paychex-PAYX-ADP-BRK.A-ASF-RHI0915.aspx