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Sector Snap: ADP, Paychex shares fall on downgrade

The shares of two key payroll service providers fell in trading Wednesday following an analyst downgrade.

Jefferies analyst Jason Kupferberg downgraded his ratings on both Paychex Inc. and Automatic Data Processing Inc. to "Underperform," from "Hold," citing the challenging employment market.

"We've been cautious for some time on (these companies); now we think it's time to sell the stocks," Kupferberg wrote in a research note.

In addition to the latest disappointing employment reports, he said the two companies are operating in a business that is relatively mature, and growth in newer services is "likely to remain below pre-recession levels."

Kupferberg noted that the two companies have the highest price-to-earnings growth ratio among their peers — large, dividend-paying tech companies.

The analyst said the current prices reflect stocks that lived in the past. He kept his earnings estimates and price targets intact.

Shares of Paychex fell 45 cents to $33.66 by early afternoon. ADP's shares fell 94 cents to $57.50.

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