Paychex and Dollar Tree: Analysts Share Insights on Recent Results

Matt Argersinger: What you’re saying is we don’t know?

Ron Gross: We don’t know anything. Do we ever?

Ron Gross: We’ll find out.

Matt Argersinger: That’s right.

Paychex Reports Mixed Results Amid Market Uncertainty

Ron Gross: On Wednesday, Paychex announced its first quarter operating results, which I characterize as good but not stellar. Despite this, investors reacted positively, leading the stock to rise. Asit, what are your thoughts?

Asit Sharma: I view the Paychex numbers as a comforting bowl of warm soup in our current chilly climate of uncertainty, as Matt noted. The headline figures indicate a 5% increase in revenue and a 6% bump in operating income. Adjusted diluted earnings per share rose by 8%. While these numbers aren’t overly exciting, companies like Paychex, which boasts high returns on capital and solid cash flows, become more appealing during uncertain times. Growth companies are pulling back on capital expenditures, making stable businesses like Paychex more attractive.

Moreover, I find it significant that Paychex is a bellwether stock. They manage numerous payrolls across the country weekly, providing valuable insights into the economy. Based on what they are observing, management believes the labor market appears steady. In volatile periods, we should pay attention to these warm soup companies. Notably, Paychex is also an efficient capital allocator. It generates substantial free cash flow and maintains a generous dividend payout of around 60-70%. This stock has outperformed the market significantly over the last decade, showing over 320% total return when accounting for reinvested dividends.

Matt Argersinger: I appreciate companies that can outperform others. That’s impressive.

Ron Gross: Indeed. Let’s trademark “warm soup companies.” Asit, what’s your take on Paychex’s acquisition of Paycor?

Evaluating Paychex’s Strategic Acquisition of Paycor

Asit Sharma: I believe I support this acquisition, Ron, but let me keep it brief. Paycor, a smaller firm in the payroll and human capital management sector based in Cincinnati, is being acquired for cash at a price of $4.1 billion. This amounts to about 35 times its trailing twelve-month free cash flow, which is slightly on the expensive side and will increase goodwill on Paychex’s balance sheet. However, Paycor possesses significant strengths in Cloud and AI, areas where Paychex aims to strengthen its capabilities.

This acquisition will help complement Paychex’s small and medium-sized business offerings, enabling cross-selling of services. If we visualize this acquisition on a spectrum—where the left side indicates a purely financial move and the right side signifies a strategic one—I see this approximately three-quarters towards strategy. The parts being acquired can enhance future earnings and cash flow, so I am in favor.

Dollar Tree’s Recent Sales and Strategic Shift

Ron Gross: Also on Wednesday, Dollar Tree reported its fourth-quarter earnings and announced a plan to sell its struggling Family Dollar business to private equity for $1 billion. Matt, how do these earnings look to you?

Matt Argersinger: Regarding Dollar Tree, examining the continuing operations of the Dollar Tree business, I found the results to be decent. Same-store sales were up by 2%, with a 0.7% increase in customer traffic and a 1.3% rise in ticket sizes. Given that this business primarily serves lower-spending consumers, those figures are fairly positive. Earnings per share exceeded expectations, and the guidance seems optimistic, anticipating same-store sales growth of 3-5% this fiscal year, with earnings per share projected at $5.25, marking a 9% increase compared to fiscal 2024. It’s not a distressing narrative for Dollar Tree this quarter.

Ron Gross: They are selling Family Dollar for about $1 billion, a significant loss compared to the roughly $9 billion they paid in 2015. Is this a wise decision despite the apparent losses?

Matt Argersinger: Yes, it seems to be the right move, despite the fire sale price. Family Dollar has faced numerous challenges that ultimately led to this decision. Unlike Dollar Tree, Family Dollar operates more in urban and rural areas, providing a wider range of food and essential goods, which have not performed as well. Dollar Tree had hoped to enhance Family Dollar’s profitability profile, but the effort failed to yield results.

Comparing Dollar Tree to Dollar General, which is similar to Family Dollar, shows that Dollar General’s profitability per store is about half of Dollar Tree’s. The poor performance of Family Dollar diluted Dollar Tree’s results, contributing to significant losses of around $4 billion last year. By divesting Family Dollar, Dollar Tree can bolster its profits. Despite the sale feeling like a substantial loss, I believe it’s a prudent decision.

Ron Gross: Coming up, we’ll discuss athletica, housing, and a new IPO. You’re listening to Motley Fool Money.

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Lululemon and KB Home Face Investor Concerns Amid Financial Updates

Welcome back to Motley Fool Money. I’m Ron Gross here with Asit Sharma and Matt Argersinger. On Thursday, Lululemon reported its fourth quarter earnings that beat expectations. However, it was the forward guidance that worried investors, causing the stock to decline sharply. Asit, the quarterly results seem solid, yet management’s concerns about consumer spending and potential tariff impacts really captured investor attention. Are these short-term issues or something more concerning? Here are your thoughts.

Asit Sharma: That’s a compelling question, Ron. Lululemon is a well-respected brand, and in my view, they had a strong quarter. Their top line increased 13%. Even adjusting for an extra week in the last 12 months—the benefit of a 53rd week—the revenue still grew by 8%. They achieved an operating income of $1 billion, and their gross margin expanded, which is all encouraging. However, moving forward, Lululemon anticipates slower growth, particularly in the US and North America, which is where investors are focusing their concerns. The company expects revenues to range from $11.2 billion to $11.3 billion—a growth of 5-7%. In this economy, that might not seem bad, but the reality is that most of their business is concentrated in a slowing US market.

Several factors contribute to this outlook. For one, lower foot traffic into stores is an industry-wide issue. Consumers are pulling back across the board. Additionally, there are worries about margins due to tariffs. Management recently commented that they expect a mild tariff impact—around 20 basis points contributing to a decrease in gross margin. However, the real story revolves around China, which is growing at an impressive 25-30% annually. This growth helps mitigate some tariff concerns since Lululemon can manufacture some products there and sell within the local market. Yet, the slowdown in the US market is resulting in only mid-single-digit growth, leading to speculation that strong competitors like Vuori are attracting consumer attention.

Lululemon is also planning to refresh its apparel lines with new styles and colors. These updates may help draw customers back into stores, but there’s underlying worry about consumer sentiment later this year. We’ve touched on broader macroeconomic factors before. If customers are hesitant and face more choices, it could lead to disappointing sales figures in the long run. I generally have confidence in the Lululemon brand, which is known for its high-quality technical clothing and has a loyal customer base. Nevertheless, the immediate outlook seems uncertain.

Ron Gross: Earlier this week, KB Home suffered a decline in its stock price when first-quarter results fell short of expectations. Matt, can you discuss the quarter? I’d also like to hear your perspective on the housing market and the homebuilding industry overall.

Matt Argersinger: The situation in the housing market isn’t encouraging, Ron. KB Home reported first-quarter revenue and earnings per share that both came in below expectations. Deliveries were down by 9%, and absorption rates also decreased. On a positive note, the average selling price rose by 4%. This has been a common trend among homebuilders—lower deliveries accompanied by higher selling prices. However, gross margins fell by about 100 basis points. Looking ahead, management anticipates net orders to decline by 17% this quarter, and they have lowered their full-year revenue guidance from $7.3 billion to $6.8 billion, which is quite a cut.

Overall, the report wasn’t strong, and management’s comments regarding the housing market reflected previously expressed sentiments from other builders. The spring selling season has been slower than expected, though to be fair, it is still early. Consumers are grappling with affordability challenges, which is widely acknowledged. Economic uncertainty surrounding tariffs and related issues is also weighing heavily on market sentiment. While management mentions that traffic remains strong at their communities and showrooms, buyers are hesitating to finalize purchases. This trend is troubling for the overall housing market. Homes aren’t moving on the existing side, with potential sellers reluctant to trade their low-rate mortgages for higher rates. This has resulted in stagnation in inventory levels for three years.

Homebuilders were previously seen as the only solution, but they face their own set of challenges. Increased construction costs due to inflation and a reluctance to lower prices are combining to make a tough housing market. If these conditions continue, we may see widespread damage not just for new homes but also for existing homes. Companies like Whirlpool and Home Depot are already feeling the impact, and many observers are hoping for a turnaround in the housing market, though I don’t see that happening soon.

Ron Gross: That is concerning.

Matt Argersinger: Very concerning.

Ron Gross: These trends could resonate throughout the economy. Now let’s shift gears to discuss something new. On Thursday, the artificial intelligence startup CoreWeave raised $1.5 billion in its IPO, pricing shares at $40—well below the expected range of $47 to $55 per share. Asit, what do you make of CoreWeave as a company? What does this week’s IPO signal for the broader IPO and AI stock landscape?

Asit Sharma: CoreWeave is a fascinating company. They specialize in renting GPUs, particularly Nvidia units, with about 250,000 GPUs spread across 32 data centers, which provides significant computational power. The company heavily relies on Microsoft, which accounts for around 62% of their business. This model seems promising, especially as AI computation becomes increasingly vital. However, I have concerns about whether their investment in GPUs will stay current. With Nvidia constantly releasing new technology, their offerings might feel outdated in just a few years.

Additionally, the IPO appears to be underpriced since enthusiasm for AI has waned as companies reevaluate their data center expenditures. While it’s worth monitoring CoreWeave, it may not be the time to invest just yet, in my opinion.

Ron Gross: I noticed a report stating that Nvidia plans to support the public offering by investing $250 million. It will be interesting to see if that order materializes.

Asit Sharma: Just some chump change to boost the young company—it’s nothing compared to Nvidia’s scale.

Ron Gross: We will be back shortly with more insights for you, so stay tuned.

The Quest to Uncover Bitcoin’s Enigmatic Creator: A Conversation with Ben Wallace

You’re listening to Motley Fool Money. I’m Ron Gross. Over the last 16 years, Bitcoin has transitioned from a niche interest on the Internet to a significant player on Wall Street. It has even gained recognition as a potential reserve asset for businesses and the U.S. government.

A Persistent Enigma: The Identity of Satoshi Nakamoto

Dan Boyd: Despite significant evolution in the world of cryptocurrency, a core mystery remains: Who is Satoshi Nakamoto, the founder of Bitcoin? Ben Wallace, an accomplished author and reporter with bylines in Wired, the Wall Street Journal, Vanity Fair, and New York Magazine, has sought to answer this question in his new book, The Mysterious Mr. Nakamoto. He recently discussed the insights from his book with my colleague, Dylan Lewis.

Tracing the Origins of Bitcoin

Dylan Lewis: Let’s delve into Satoshi Nakamoto and his compelling backstory. First, can you summarize the early days of cryptocurrency for listeners who might not be familiar? Can you take us back to the Bitcoin white paper and the initial appearances of Satoshi?

Ben Wallace: Satoshi Nakamoto first made his presence known on the Internet on October 31, 2008—Halloween, to be precise. A post appeared on a cryptography mailing list called Mets Doubt, which attracted individuals passionate about cryptography, including some libertarian computer scientists. Satoshi’s initial post shared the basic idea of Bitcoin, followed by a more detailed white paper that elaborated on the concept.

The Journey of Bitcoin: From Rise to Fall and Back Again

Dylan Lewis: Fast forward to when you began your reporting on this story. We’re now a decade and a half beyond those first days. At what moment did you realize Bitcoin was here to stay and that you would be following its development long-term?

Ben Wallace: Ironically, it wasn’t during my first foray into the topic. Back then, I wrote an article for Wired titled “The Rise and Fall of Bitcoin.” It’s worth noting that similar headlines have been published repeatedly, as suggested by the website Bitcoin obituaries, which lists over 400 articles that have prematurely declared Bitcoin’s demise. Despite experiencing multiple significant booms and busts, Bitcoin has remarkably shown resilience. During these downturns, people often announced it was finished, only for it to rise again, with each boom surpassing the last. The turning point for me came in 2014. At that time, I had a small amount of Bitcoin, and as prices dipped to around $400 from over $1,000, I was convinced it would drop to zero. I attempted to sell my Bitcoin, but right before I finalized the transaction, the exchange, Mt. Gox, collapsed due to a hacking scandal, and I lost access to my coins. Despite thinking it was over, Bitcoin managed to rise again.

Exploring the Story Behind the Mystery

Dylan Lewis: Your book provides a fascinating journey through the Internet over the past 20 years, revisiting significant moments and characters in this saga. Which locations or figures stood out most during your research?

Ben Wallace: Initially, I encountered several usual suspects during my investigations. Most of them hailed from two key Silicon Valley subcultures of the 1990s. The first group was the Cypherpunks, individuals who championed the free availability of strong cryptography in the face of government restrictions. This community often included libertarian-minded computer scientists, many of whom were interested in creating decentralized digital currency. The second group was the Extropians, who focused on themes like longevity and radical life extension, even exploring concepts like cryonics. Notably, many individuals from both groups were considered in the search for Satoshi Nakamoto.

Speculating on Satoshi’s True Identity

Dylan Lewis: Based on your research, who do you believe is Satoshi, or what personal theory stands out to you?

Ben Wallace: This depends on how you define “favorite.” Hal Finney is a top candidate whom I had the opportunity to interview by email for my earlier work on the topic. Despite battling ALS, he remained incredibly positive, providing thoughtful responses during our exchange. Many consider him the most approachable and likable figure among those suspected to be Satoshi. While evidence suggests he might be Nakamoto, there’s also counter-evidence. Interestingly, one of my favorite theories links to a man named James Donald. Although many viewed him as an enigmatic figure—some even thought him deceased—he was connected to both the Cypherpunks and Extropians, making him a compelling candidate in this mysterious narrative.

# Unraveling Satoshi: The Mystery of Bitcoin’s Anonymity and Its Impact

In the quest to uncover the true identity of Bitcoin’s elusive creator, Satoshi Nakamoto, researchers have found intriguing connections. One candidate, Donald, stood out for his unique linguistic choices, particularly a term he used that aligns with Nakamoto’s writings. Notably, Donald employed the word “fencible” in a 1998 Cypherpunk mailing list discussion, which highlights the distinct lexical overlap. This specific choice transcended mere coincidence, creating a compelling case for Donald as a significant figure in Bitcoin’s inception.

As I delved deeper into Donald’s background, it became clear that he held politically radical views, often expressed in a blog that didn’t link his identity. This raised questions about Nakamoto’s intent in remaining anonymous. Would his reputation as a controversial figure undermine Bitcoin’s widely-held perception as a benevolent innovation? Given the complex nature of Nakamoto’s contributions, it’s plausible that his anonymity was a strategic decision rather than a protective measure against potential scrutiny.

Dylan Lewis: How has the anonymity of Satoshi impacted Bitcoin’s evolution and community? Would Bitcoin have thrived with a known figure at the forefront?

Ben Wallace: The mystery surrounding Satoshi has been pivotal for Bitcoin’s growth. A leaderless currency aligns perfectly with the decentralized ethos Bitcoin champions. The community generally prefers Satoshi’s anonymity, dismissing journalist inquiries into his identity as intrusive. The intrigue surrounding who Satoshi might be serves as a marketing boon, drawing interest toward Bitcoin in a unique way. The lack of a recognizable face means Bitcoin remains broadly appealing, avoiding alienation of specific groups.

Dylan Lewis: Observing the influx of institutional money into Bitcoin is fascinating, especially with the approval of Bitcoin spot ETFs and major investors engaging with the cryptocurrency. How does this financialization align with Satoshi’s original vision?

Ben Wallace: It’s a significant departure from Satoshi’s vision. Bitcoin was conceived as a “freedom money,” a response to financial system limitations. The trend of institutions adopting Bitcoin contradicts the foundational spirit celebrated by early supporters, many of whom had libertarian principles or a fascination with alternative currency projects.

Dylan Lewis: Was this commercialization of Bitcoin inevitable? We’ve seen similar patterns with other internet phenomena transforming over time.

Ben Wallace: Yes, it was likely inevitable. Early Bitcoin enthusiasts desired appreciation in value. For Bitcoin to realize that value, its market size had to expand, leading to mainstream acceptance. This widespread adoption inherently risks co-option by traditional financial systems, a possibility many early adopters may have overlooked.

Ron Gross: Stay tuned, as Asit Sharma and Matt Argersinger will share stocks worth watching after a brief break. You’re listening to Motley Fool Money.

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Ron Gross: Welcome back to Motley Fool Money. I’m Ron Gross, and I’m joined by Asit Sharma and Matt Argersinger. Let’s touch on a quick story before we delve into stocks on our radar. This weekend marks the culmination of March Madness, with the final eight teams set to compete. After ten years, one fortunate Berkshire Hathaway employee has triumphed in Warren Buffett’s $1 million NCAA bracket challenge, accurately selecting 31 of the 32 first-round matchups. They took home the grand prize, with eleven runners-up each receiving $100,000. Does this thrill you? Are you fans of March Madness?

Asit Sharma: I’d definitely be excited if there’s a chance to win money for next year, Ron.

Matt Argersinger: It’s quintessentially Buffett, in my opinion, considering his keen interest in forecasting future outcomes. The challenge reflects on the unpredictability of sports, underscoring the complexity of making correct predictions.

Asit Sharma: It seems easier than before because in prior years, participants had to predict the entire Sweet 16. This time, however, the predictions remained tricky, demonstrating just how unpredictable the tournament can be.

Ron Gross: Absolutely. Any bold predictions for the ultimate winner?

Matt Argersinger: I’ll take a risk and say Duke is the team to watch, especially with Cooper Flagg’s impressive skills.

Ron Gross: And you, Asit?

Asit Sharma: As a UNC alumnus, I favor Duke secondarily. I’m impressed by Florida’s dynamic offense and aggressive defense; they could be a tough contender. While Duke may take it, Florida has potential as an underdog.

Ron Gross: Dan Boyd, any final thoughts on who’s winning?

Dan Boyd: Personally, I’m more excited about the return of baseball, as MLB’s opening day was yesterday. That’s what I’m focused on!

Financial Insights: McKesson and Amazon Highlight Stock Radar

Ron Gross: Sounds good. Fools, it’s time for a couple of stocks on our radar. I’ll bring in our colleague Dan Boyd for a question and his thoughts. Asit, you’re up first. What do you have for us?

Asit Sharma: I’m focusing on McKesson Corporation (symbol: MCK), which stands as the largest distributor of pharmaceuticals in the United States. The appealing aspect is their role in distributing GLP-1 drugs among various manufacturers. McKesson generates substantial free cash flow, similar to Walmart. While their margins are relatively thin, their size ensures they maintain a strong bottom line, typically converting most of their net income into free cash flow, which is then used to buy back shares. It’s a straightforward approach. Additionally, their margins are likely to improve as they expand into acquiring practices like oncology and ophthalmology. This under-the-radar option is intriguing, and while it’s somewhat of a mixed bag, McKesson holds promise.

Ron Gross: Dan, do you have a question regarding McKesson for Asit?

Dan Boyd: COVID’s impact seems mature now, Asit. Are you anticipating significant growth for McKesson, or is this more a value investment?

Asit Sharma: I liken their story to that of a Scottish senior citizen who became a champion in stationary rowing; they may not be the most explosive growth story but there’s potential for modest acceleration. Even a few percentage points of growth can make a difference for a mature company like McKesson.

Ron Gross: Matt, what are you looking at?

Matt Argersinger: While Asit considers warm soup, I’m focused on cold fish, particularly how the MAG 7 stocks have performed thus far this year. Here’s a rundown: Apple is down 14% from its peak, Microsoft down 16%, Amazon down 17%, Meta down 18%, Alphabet down 21%, Nvidia down 27%, and Tesla is trailing significantly at down 45% from its all-time high. However, one MAG 7 stock piques my interest—Amazon. Compared to the other MAG stocks, I identify strong reasons for optimism with Amazon. Nvidia faces possible challenges from a downturn in the semiconductor cycle, while Apple struggles with high valuation and competition from Chinese phones. Microsoft also contends with similar valuation issues, and Alphabet is threatened by AI potentially disrupting its core search business. Meta is grappling with shifting user behavior and a weak advertising market. Tesla needs no introduction regarding its mixed bag of challenges.

But Amazon stands apart, offering strong double-digit revenue growth. Its forward earnings valuation is below 30, making it cheaper than both Walmart and Costco. The third-party e-commerce segment remains unmatched, and retail margins are improving. Additionally, the growing advertising business, alongside Prime membership, positions Amazon well for potential advancements due to AI in areas like automation, logistics, and distribution. This is the MAG stock I am most interested in acquiring more of.

Ron Gross: Passionate insights, Matt. Dan, any remarks on Amazon?

Dan Boyd: I’m already an Amazon shareholder, so I’m not sure if I can consider it for my radar, but I could keep an eye on it. Is there anything that could disrupt Amazon’s dominance in e-commerce?

Matt Argersinger: Aside from a meteor hitting, I believe Amazon is only getting sturdier. This company already stands at a $2 trillion market cap, and I foresee it reaching $5 trillion. They’re on an upward trajectory.

Ron Gross: So, Dan, does that mean you’re favoring McKesson, or will you increase your stake in Amazon?

Dan Boyd: Honestly, I find myself more interested in McKesson at this moment, Ron.

Ron Gross: Great insights from Asit Sharma and Matt Argersinger. Thanks for sharing your thoughts today. That wraps up this week’s edition of Motley Fool Money. Our engineer is Dan Boyd. I am Ron Gross. Thank you for listening. We’ll catch you next week.

Note: Suzanne Frey is an executive at Alphabet and is a member of The Motley Fool’s board of directors. Randi Zuckerberg, sister to Meta Platforms CEO Mark Zuckerberg and a former spokesperson for Facebook, is also on the board. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member. Charles Schwab is an advertiser with Motley Fool Money. Asit Sharma holds positions in Amazon, Costco Wholesale, Dollar General, Microsoft, and Nvidia. Dan Boyd’s holdings include Amazon, Berkshire Hathaway, and Costco Wholesale. Dylan Lewis does not hold any positions in the stocks mentioned. Matthew Argersinger has positions in Alphabet, Amazon, Charles Schwab, Home Depot, and Tesla. Ron Gross owns shares in Amazon, Apple, Berkshire Hathaway, Bitcoin, Charles Schwab, Costco Wholesale, Home Depot, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Bitcoin, Costco Wholesale, Home Depot, Lululemon Athletica, Meta Platforms, Microsoft, Nvidia, Tesla, and Walmart. The Motley Fool also recommends Charles Schwab, KB Home, and McKesson, along with options: long January 2026 $395 calls on Microsoft, short April 2025 $75 puts on KB Home, short January 2026 $405 calls on Microsoft, and short March 2025 $80 calls on Charles Schwab. The Motley Fool maintains a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.