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Paychex, Inc. (PAYX) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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Paychex, Inc. (PAYX)

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Intrinsic Value (DCF)

Current$109.66
→
Intrinsic$80.87
-26%
$52.36$80.87$135.07
Market implies 15% growth for 5 years
PAYX trades at a premium to our conservative estimate — investors expect above-average performance.
At $110, the market prices in continued high-teens cash flow growth (15%) — likely reflecting buybacks, margin stability, and ecosystem strength.
Range: Bear $52 → Bull $135. Current price implies expectations above the base case, closer to bull expectations.
Discount ↓Growth →5%7%9%11%
8%$98$107$118$129
10%$67$74$81$89
12%$50$55$60$66
14%$39$43$47$52

Bull Case

  • Bull case ($135) offers 23% upside at 10% growth, 9% discount
  • Conservative 9% growth assumption is achievable based on track record

Bear Case

  • Bear case ($52) implies 52% downside at 7% growth, 12% discount
  • Price reflects 15% growth expectations vs 9% historical — high bar to clear
  • Trading 26% above base case — execution must exceed assumptions to justify
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5-Year Free Cash Flow Projection

Year 1$1.91B
Year 2$2.07B
Year 3$2.25B
Year 4$2.44B
Year 5$2.65B
Terminal$39.00B

📐 Model Inputs

Growth Rate8.5%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate10.0%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Free Cash Flow$1.76BTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. See FAQ below for full methodology.

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Frequently Asked Questions

Is PAYX stock undervalued or overvalued?
🔴 OVERVALUED

PAYX trades at $109.66 vs. our DCF-derived intrinsic value of $80.87, implying -27% downside. Using a 10.0% WACC and 8.5% FCF growth assumption, the current price requires growth rates above our estimates to be justified. Even our bull case ($114.72) suggests limited upside.

What is PAYX's intrinsic value?

Using a 5-year DCF model: Base FCF of $1.76B, projected at 8.5% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 10.0% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $3.39B net debt and dividing by 0.36B shares: Bear $55.68 | Base $80.87 | Bull $114.72. Current price $109.66 implies -27% to base case.

How is PAYX's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 8.5% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=10.0%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($32.67B).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 18.6x.