TD Cowen Downgrades Price Target on Paycom Software, Citing Growth Concerns

TD Cowen has adjusted its price target for Paycom Software (PAYC) to $380 per share, down from a previous $420, marking a 9.5% reduction. The change reflects the firm's reassessment of Paycom's growth trajectory amid intensifying competition and evolving enterprise spending patterns in the cloud-based human capital management (HCM) space. While the firm maintains a 'Outperform' rating, the downward revision underscores a shift in sentiment toward cautious growth expectations for the remainder of the fiscal year. Paycom’s revenue growth has moderated in recent quarters, with FY2024 revenue up 14.2% year-over-year, below the 18%+ growth seen in prior periods. Analysts note that customer acquisition costs have risen, particularly in the mid-market segment, which could pressure margins if not offset by higher retention or cross-selling. Additionally, the company’s forward-looking guidance for FY2025 now projects low double-digit growth, slightly below industry averages for SaaS peers with similar market penetration. The stock, trading around $365 at the time of the report, has seen modest volatility since the announcement, with a 1.7% decline in early trading. Institutional investors, particularly those tracking SaaS and HR tech portfolios, are reevaluating position sizing amid the revised outlook. The move is being monitored closely by investors focused on enterprise software resilience in a high-rate environment. Market participants are also noting that Paycom’s enterprise customer base expanded by 5.3% quarter-over-quarter, indicating sustained adoption. However, the pace of new client onboarding has slowed, with net dollar retention at 108%, slightly down from 110% in the prior quarter.