Investing.com -- Paychex received an upgrade from Citi, which raised its rating on the human capital management company to Buy from Neutral and increased its price target to $140 from $99, citing improving growth trends, benefits from the Paycor acquisition, and emerging AI-driven opportunities.

The brokerage expects Paychex's organic revenue growth to accelerate in fiscal 2027, reversing a four-year slowdown, supported by strong bookings momentum, revenue synergies from Paycor, and favorable small-business trends. Citi forecasts organic growth of 5.0% in fiscal 2027 and 5.7% in fiscal 2028, up from an estimated 4.5% in fiscal 2026.

Citi highlighted that Paychex recently posted its strongest sequential improvement in bookings growth in more than a decade, with double-digit growth in both its professional employer organization (PEO) and Paycor businesses. The firm believes increasing cross-selling opportunities and a shift toward larger clients through Paycor should boost average revenue per customer and support sustained growth.

The bank also argued that artificial intelligence represents a positive catalyst rather than a threat to Paychex. According to Citi, AI-powered tools can enhance customer retention, create new pricing opportunities, automate workflows, and lower operating costs. The firm's proprietary WISE platform is expected to help deepen customer engagement while improving employee productivity and service efficiency.

Citi noted that Paychex has become less dependent on payroll processing revenue, with payroll now accounting for less than 40% of total revenue compared with roughly 60%-70% historically. The company has increasingly diversified into HR outsourcing, insurance, retirement, compliance, and advisory services, making it less sensitive to employment trends than many investors assume.

The brokerage expects Paychex to deliver solid fiscal fourth-quarter results on June 24 and issue fiscal 2027 guidance that points to accelerating growth. Citi projects fiscal 2027 revenue growth of 5.5%, adjusted operating margins of 43.4%, and adjusted earnings per share of $5.94.

Citi also sees valuation as attractive, noting the stock trades at a significant discount to its historical earnings multiples despite improving growth prospects. Combined with a dividend yield of about 4.7% and strong free cash flow generation, the firm believes Paychex offers compelling upside potential and downside support for investors.