Paychex (PAYX) is seeing softer revenue per employee trends which are "often the first step towards sticky top-line softness," Morgan Stanley said in a research note Monday following the release of the company's fiscal Q2 results Friday.

The softer trends that Paychex is facing are evidence of small and medium-sized businesses' willingness to manage their costs, the note said.

Paychex needs to demonstrate that Paycor, which it acquired in April, can reaccelerate organically, as sustainable double-digit growth currently appears challenging, the brokerage added.

Morgan Stanley said Paychex's shares, despite the fact that they are near trough multiples over the last 10 years, are still "difficult to own in the near-term" due to factors like the "directionality of SMB employment" and Paycor's "underwhelming" top-line performance.

The note also highlighted "a 'tough to disprove' narrative about AI being an incremental risk to employment."

Morgan Stanley cut Paychex's price target to $123 from $133 and has an equal-weight rating on the company.

Shares of Paychex were up 2% in recent trading.

Price: 114.57, Change: +2.29, Percent Change: +2.04