(By Balachander) Paychex Inc. (NASDAQ:PAYX) shares were downgraded to "Neutral" from "Buy" by UBS Securities on full valuation.
"Given an attractive 3.7 percent yield, investors will likely continue to view PAYX shares favorably," the brokerage wrote. "With shares trading at 20x our FY 2013E EPS (towards the high end of their recent historical trading range) and limited operating leverage visible in the model, we see little upside from current levels."
Indeed, UBS thinks cautious overall commentary and general top-line lightness show the backdrop is not meaningfully improving and key metrics are likely to continue their sluggish trajectory.
UBS has a price target of $35.00.
On Monday, the payroll processor reported a 3 percent increase in quarterly earnings helped by double-digit growth in human resources services revenue and a moderate increase in new payroll sales.
Despite client retention near an all-time high, UBS said revenue growth decelerated in Q1 FY 2013 against difficult comparisons.
The company's revenue per check grew modestly, impacted by price increases and partially offset by discounting.
Looking ahead into fiscal 2013, the company still expects earnings to increase 5 percent to 7 percent and service revenue growth of 5 percent to 6 percent.
The stock, which has been trading in a 52-week range of $25.20 to $34.70, retreated 2.94 percent to trade at $33.37 on Tuesday.