Goldman Sachs downgraded Paychex (PAYX ) to market perform from recommended list. Analyst Gregory Gould says Goldman's Economics Research Group reduced its Fed Funds rate outlook to 1.00% from 1.75%, anticipating a 75 basis point cut by yearend. In IT services, payroll sector has greatest direct exposure to interest rates. He notes that since a rate reduction would happen at the end of this calendar year, this would dampen growth throughout calendar year 2003, resulting in six quarters of lower than expected EPS growth from the current quarter, possibly muting investor enthusiasm.
He adds that PAYX carries a high valuation vs. its peers and the S&P 500 index. He cut $0.78 fiscal year 2003 (May) EPS estimate to $0.75, and $0.88 fiscal year 2004 forecast to $0.83.