COVID-19 Vaccine Could Be a Big Catalyst for Paychex, Inc.
One year into the COVID-19 pandemic and the end finally
appears to be in sight.
In November, several biotech companies announced that they
had produced effective vaccines. Yes, it will take months to ramp up production
and immunize the general population. But the positive trial results put a
definite timeline on the end of the economic lockdowns.
COVID-19 vaccines will provide a definite boost to the U.S.
economy. Almost 15.0 million Americans lost their jobs as a result of the
pandemic. But as governments loosen lockdown restrictions, many of those people
will get back to work. (Source: “Unemployment Rose Higher in Three Months of
COVID-19 Than It Did in Two Years of the Great Recession,” Pew Research Center,
June 11, 2020.)
All of which means good news for Paychex, Inc.
(NASDAQ:PAYX).
The company provides human resources, payroll, and benefits
services to small and medium-sized businesses. In other words, it performs many
of the boring back-office functions that companies need to keep their numbers
straight. And this important service typically results in steady, recurring
cash flows. That explains why Paychex stock has remained a member of the
Automated Income model portfolio for years.
Admittedly, the pandemic presented two big problems for
Paychex’s business. First, the company usually charges clients fees based on
the number of their employees. So when businesses began laying off staff in the
recession, that took a bite out of Paychex’s revenues. Second, Paychex earns
interest income on funds held for clients. But with the Federal Reserve
slashing yields to basically zero, the company has seen this passive income
stream dry up.
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