Examining Paycom (PAYC-NYSE) taking a full ‘retrospective adoption approach’ to adopting the new ASC 606 standard, their restating of adjusted EBITDA has driven us to update our EV/EBITDA forecast model. The new standard allows Paycom to defer a materially larger than industry average portion of their sales commissions over the lifetime of its customers. This has caused adjusted EBITDA for 2017 to now be $186 million versus $137 million previously.
Our new function involves seven public payroll SaaS companies that have produced an r-squared of 0.863 in forecasting the current EV/EBITDA multiple.
The end result is our target EV/EBITDA multiple for Paycom has been reduced from 45x to 36x. Our price target moves from $96 to $114.
Below is the function for our updated EV/EBITDA multiple forecast model:
Source: Perspectec
Below are the financials takeaways from Q4/17:
Source: Perspectec and Company Reports
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