Stocks to Watch as May's Jobs Report Beats Economists' Expectations: PCTY, MMS

May's jobs report exceeded expectations, with 139,000 jobs added versus the consensus of 125,000-130,000, and the unemployment rate holding steady at 4.2%, driving a 1% increase in the S&P 500 and Nasdaq. Wage growth also outpaced inflation, with average hourly earnings rising 3.9% year-over-year. Paylocity (PCTY) and Maximus (MMS) are highlighted as stocks to watch, with PCTY consistently beating EPS estimates and MMS benefiting from rising EPS revisions and a low forward P/E ratio.

Analysis

The May jobs report significantly surpassed economists' expectations, with U.S. employers adding 139,000 jobs against a consensus of 125,000-130,000, while the unemployment rate held steady at 4.2%. This robust labor market data contributed to a market rally, evidenced by the S&P 500 and Nasdaq each rising over 1%. A key positive development was wage growth outpacing inflation, as average hourly earnings increased 3.9% year-over-year, compared to April's 2.3% Consumer Price Index reading, which may alleviate some concerns around tariffs; however, the upcoming CPI data release on Wednesday, June 11, remains a critical watchpoint. In this environment, payroll-related equities are drawing particular attention. Paylocity (PCTY), a cloud-based human capital management solutions provider, demonstrated strong performance by beating its fiscal third-quarter EPS estimates by 16% and has now surpassed the Zacks EPS Consensus for 26 consecutive quarters, with an average positive EPS surprise of 15.4% over the last four quarters. Maximus (MMS), a government health and human services program provider, also presents a compelling case with its fiscal 2025 and fiscal 2026 EPS estimates revised upwards by nearly 7% and 4% respectively in the last 30 days, a substantial Q2 fiscal EPS beat of 47% ($2.01 actual versus $1.37 consensus), and an attractive forward P/E multiple of 10.8X. Other payroll-related firms such as Dayforce (DAY), Paychex (PAYX), and Barrett Business Services (BBSI) currently hold a Zacks Rank #3 (Hold). The jobs report also highlighted significant strength in specific sectors, with healthcare adding 62,000 jobs and leisure/hospitality adding 48,000 jobs, suggesting potential opportunities in these areas.

Key Decisions for Investors

• Investors may consider Paylocity (PCTY) and Maximus (MMS) for further due diligence, given their consistent earnings outperformance, positive EPS revisions, attractive valuation for MMS, and 'Strong Buy' Zacks Rank status.
• Monitor the Consumer Price Index (CPI) data release on June 11 closely, as this will be a key short-term catalyst influencing inflation expectations and broader market sentiment.
• Evaluate potential opportunities within the healthcare and leisure/hospitality sectors, which exhibited the strongest job growth in May, while maintaining a neutral or 'Hold' stance on Dayforce (DAY), Paychex (PAYX), and Barrett Business Services (BBSI) pending further catalysts.