Cramer: Paychex Enters Q1 Earnings With 'a Full Head of Steam'

Jim Cramer expects Paychex, Inc. (NASDAQ:PAYX) to walk into its September 23 earnings report with real momentum. Speaking during the game plan segment of the September 18 episode of Mad Money, he framed the payroll and HR provider as a direct play on the strongest corner of the American economy.

"Wednesday, besides the Okta meeting, we have reports from two companies that are very important to small and medium-sized businesses. Cintas: they do uniforms, and Paychex... Paychex handles payroll processing and human resources. Both are coming in earnings with a full head of steam. Makes sense. That segment of the economy remains the hottest and historically won't be hurt by that first rate hike," Cramer said.

The Numbers Behind the Run

Paychex is scheduled to report fiscal first-quarter 2027 results on September 23. The report follows a fiscal 2026 in which revenue rose 17% to $6.51 billion and adjusted diluted EPS increased 11% to $5.51.

The company's own labor-market data supports Cramer's read. The Paychex Small Business Jobs Index stood at 99.13 in August, roughly in line with the 2026 year-to-date average. Weekly hours worked increased for a sixth consecutive month. Hourly earnings rose 2.89% and weekly earnings increased 3%. The index draws on payroll data from approximately 350,000 Paychex clients with fewer than 50 employees.

A large share of last year's growth came from acquisition arithmetic. Paycor contributed approximately 12 percentage points to total revenue growth and 15 percentage points to Management Solutions revenue growth in fiscal 2026. For fiscal 2027, Paychex expects Management Solutions revenue to increase 5% to 6%.

Where the Bear Case Sits

Revenue growth is expected to slow sharply, from 17% in fiscal 2026 to 5% to 6% in fiscal 2027. The comparison is less dire than it looks: stripping out Paycor's roughly 12 percentage points of contribution, the underlying revenue trajectory is much closer.

The profit picture carries more friction. Adjusted EPS growth is projected at 7% to 9%, below the 11% delivered in fiscal 2026. Interest earned on funds held for clients is expected to fall to $195 million to $205 million in fiscal 2027, down from $210.9 million in fiscal 2026.

Debt service adds another drag. Fiscal 2026 interest expense increased to $269.5 million from $105.4 million, a jump the company attributes primarily to debt used to finance the Paycor acquisition.

Hedge Funds Are Pulling Back Slightly

Institutional positioning shows mild caution. According to Insider Monkey data, which tracks more than 1,000 hedge funds, 40 funds held Paychex in the second quarter, down from 43 in the prior quarter.

One shop moved the other way. Millennium Management became the largest hedge fund shareholder after increasing its position by 106% to approximately 2.33 million shares.

Short sellers see room to run against the stock. As of August 31, approximately 5.8% to 6.4% of Paychex's float was sold short.

The September 23 print will answer the questions that matter: whether Management Solutions growth holds, how much Paycor is actually contributing on an organic basis, and whether the company maintains its 5% to 6% revenue-growth and 7% to 9% adjusted EPS-growth targets for fiscal 2027.