This is a slower growth rate than what the company achieved during Q4 2012, which affirms our concerns that a stagnating job market is hampering the company's growth prospects. 

For example, Payroll Service revenue, which is correlated with the number of employees on Paychex's client payrolls, only grew 1% during the quarter and Human Resource Service revenue increased by only 7% versus the 12% growth it posted in Q4 FY2012.

According to our estimates, Payroll Services make up approximately 73% of the company's value. Revenues for this division grew primarily due to a 2% increase in checks per payroll, and a modest increase in revenues per check. However, as mentioned above, this division's growth going forward is correlated with job growth in the United States. If the US economy falls back into a recession, and Paychex's clients start shedding jobs, we could see downside to our price estimate.

The HR Outsourcing division posted revenue growth of 7% year-over-year and will likely be the primary driver of growth for the company going forward. This division includes smaller product lines such as insurance, health and worker compensation services which posted cumulative revenue growth of approximately 21% year-over-year. Additionally, revenues from the company's software as a service offerings, which is key in attracting new small and medium business clients, also grew year-over-year.

While we've continued to stress that the weak jobs picture will temper growth for payroll processors such as Paychex and ADP (ADP), we think that the recent QE 3 program enacted by the Federal Reserve could help increase job growth in the US. In the program, the Fed has committed to pouring money in the economy until employment improves, and if it is successful and the economy gains some steam, we could see unemployment dip below the 8% level.

We currently have a $33 price estimate for Paychex, which is approximately 4% above the current market price.