It has been about a month since the last earnings report for Automatic Data Processing (ADP Quick QuoteADP - Free Report) . Shares have added about 6.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ADP due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Automatic Data Processing Surpasses Q4 Earnings & Revenues

Automatic Data Processing reported better-than-expected fourth-quarter fiscal 2020 results.

Adjusted earnings per share of $1.14 beat the Zacks Consensus Estimate by 18.8% and remained flat year over year. Total revenues of $3.38 billion beat the consensus mark by 2.6% but declined 3% year over year on a reported basis and 2% on an organic constant-currency basis.

Segments in Detail

Employer Services revenues of $2.29 billion decreased 6% year over year on a reported basis and 5% on organic constant-currency basis. Pays per control decreased 10.8% year over year. New business bookings decreased 67%.

PEO Services revenues were up 4% year over year to $1.08 billion. Average worksite employees paid by PEO Services were 548,000, down 3% from the prior-year quarter.

Interest on funds held for clients decreased 22% to $114.8 million. The company’s average client funds balances decreased 8% year over year to $24 billion. Average interest yield on client funds declined 30 basis points to 1.9%

Margins

Adjusted EBIT decreased 2% year over year to $653 million. Adjusted EBIT margin grew 10 basis points from the year-ago quarter to 19.3%, backed by prudent expense management and cost savings related to transformation initiatives, which were partially offset by a decline in revenues combined with ADP's continued investment in sales, services and products.

Balance Sheet and Cash Flow

ADP exited fourth-quarter fiscal 2020 with cash and cash equivalents of $1.91 billion compared with $1.71 billion in the prior quarter. Long-term debt of $1 billion was flat year over year.

The company generated $776.6 million of cash from operating activities in the quarter. Capital expenditures were $33.4 million. The company paid out dividends worth $391.6 million and did not repurchase any shares.

Fiscal 2021 Outlook

ADP expects revenues to decline at a rate of 1-4%. Adjusted earnings per share are anticipated to decline at a rate of 13-18%. The company expects adjusted EBIT margin to be down 300 basis points. Adjusted effective tax rate is anticipated to be 23.1%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -11.59% due to these changes.

VGM Scores

At this time, ADP has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise ADP has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.