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ADP Hits 52-Week High: What's Supporting the Stock's Rally?

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Shares of Automatic Data Processing, Inc. (ADP - Free Report) scaled a 52-week high of $143.49 on Aug 21, before closing a tad lower at $143.04.

The company’s shares have charted a solid trajectory in recent times, appreciating 22.1% year to date, ahead of the industry’s gain of 15.8%.  Notably, ADP has witnessed a 7.9% rise in share price since it posted solid fourth-quarter fiscal 2018 results.

 

Let’s find out what’s driving the stock.

Ongoing Transformation

ADP continues to innovate, improve operations and invest in its ongoing transformation efforts.  As a part of its transformation initiative, the company recently launched differentiated "Next Gen" platforms aimed at strengthening its position in HCM innovation and improving its U.S. up-market and international product suite.

The company’s other notable and recent transformation-related achievements include accelerated DataCloud penetration, increased investment in inside sales, mid-market migrations, service alignment initiatives and voluntary early retirement program.

ADP is expanding its ongoing transformation through several broad-based initiatives. These include Go-To-Market Initiatives like data-enabled market insights and streamlined support, Service Initiatives encompassing automated service enabler tools and optimized service locations, Product & Portfolio Initiatives comprising ongoing client upgrades and infrastructure optimization and Operations & Support Initiatives such as procurement and pay-for-performance programs.

Transformation initiatives are allowing the company to expand margins and improve innovation abilities.

Automatic Data Processing, Inc. Revenue (TTM)

Acquisitions Strengthening HCM Capabilities

ADP is bolstering its stake in the global human capital management (HCM) market through strategic acquisitions like Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company. These buyouts will strengthen ADP’s customer base and help it expand operations in international markets. The company continues to pursue acquisitions that strategically fit its overall business mix and are easy to integrate over the long term.

Strong Cash Position

ADP had cash and cash equivalents of $2.2 billion as of Jun 30, 2018. It continues using excess cash to aggressively buy back shares and pay out dividends. In the fiscal 2018, the company raised quarterly cash dividend by 21% and returned roughly $2.1 billion via dividends and share repurchases.

We believe that this strong cash position will not only help ADP to continue with its shareholder-friendly activities but also pursue strategic acquisitions and investments on product development in the long run.

Zacks Rank & Key Picks

Currently, ADP carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Business Services sector include Genpact Ltd. (G - Free Report) , WEX Inc. (WEX - Free Report) and Broadridge Financial Solutions, Inc. (BR - Free Report) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected EPS (three to five years) growth rate for Genpact, WEX and Broadridge is 10%, 15% and 10%, respectively.

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