Lots of Cost-CuttingIn what can only be described as a repeat of so many earnings reports last quarter, Paychex, Inc. (PAYX) beat Wall Street consensus earnings but missed on revenues. It’s the same old story: very little real growth with strong cost-cutting padding earnings. The company’s full-year outlook remained unchanged.

In the 90s, Paychex was an outstanding wealth creator on the stock market, posting consistently strong revenue and earnings growth annually. For many companies, a business matures and competition becomes fierce. However, the payroll/benefits outsourcing business is a good one, even in a slow-growth economy. For Paychex, there still is top-line growth.

According to the company, its fiscal first quarter of 2014 saw revenues grow five percent to $597.9 million. Earnings grew six percent to $162.8 million, or $0.44 per share. Consensus average was revenues of $605.5 million and earnings of $0.43 per share.

Paychex said that total sales should grow between five and six percent this fiscal year with earnings growth between eight and nine percent. That’s not bad considering the company’s 3.5% current dividend yield.

One small thing I like about this company that should be mentioned is that it makes available its form 10-Q on the same day it reports its earnings results. The 10-Q is a much more informative financial document than a press release, and it would be very useful to investors if more companies released both documents on the same day—the more disclosure the better.

Most of Paychex’s business is in the U.S. The company has an operating subsidiary in Germany, but it represents less than one percent of its total revenues.

Shareholders’ equity actually fell in the most recent quarter, but the company reported that client satisfaction and retention are at record-high levels.

Payroll service revenues grew two percent to $395.2 million, while revenues from human resource services jumped 11% to $202.7 million. The company has lots of cash on the books and no debt, which is a big deal for such a large corporation.

Two months ago, Paychex increased its dividend six percent to $0.35 a share, up from $0.33. Back in October of last year, the company raised its dividend a penny from $0.32 a share. In its latest quarter, the company repurchased 2.1 million of its own shares for $83.9 million.

Practically, I view this stock as being fully valued with a forward price-to-earnings ratio of approximately 22. The position has been in consolidation for the last 10 years, but not because the company wasn’t growing its earnings. (See “As Expectations for 3Q Earnings Season Fall, What’s the Best Investment Strategy?”)

Like so many other stocks, this one became extremely overbought in 1999 and 2000. The position lost half its value on the stock market by 2002, mostly because it outperformed so strongly in the years of the technology bubble.

Paychex is ready for a new business cycle, but it makes more money when interest rates are higher. For income-seeking investors, this is a company to watch. The company’s earnings growth picture combined with dividends is attractive, though its current valuation is a concern. With a major retrenchment in the stock, Paychex would be an attractive income security.