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Here's Why You Should Retain ADP Stock in Your Portfolio
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Automatic Data Processing, Inc.’s (ADP - Free Report) shares have appreciated 7% in the past six months compared with 6.9% and 7.2% growth of the industry and S&P 500 composite, respectively.
The company has a long-term (three to five years) expected EPS growth rate of 11.7%. Its earnings are expected to increase 11.2% and 9.4% in fiscal 2024 and 2025, year over year, respectively.
Factors That Bode Well
ADP’s three-tier business strategy helps it maintain and grow its strong position as a human capital management (HCM) technology and services provider. The company is focused on delivering a complete suite of cloud-based HCM and HR Outsourcing solutions. It is expanding its international HCM and HRO businesses with established local, in-country software solutions and cloud-based multi-country solutions.
We project revenues from the Employer Services segment to rise 7.3% year over year in fiscal 2024. PEO Services revenues are expected to grow 3.2%.
ADP has been able to accelerate DataCloud penetration, and increase investments in inside sales, mid-market migrations and service alignment initiatives through its ongoing transformation initiatives. Through these initiatives, it continues to create, improve operations, expand margins and enhance innovation abilities.
ADP has a consistent track record of dividend payment. In fiscal 2023, 2022, and 2021, the company paid $1.9 billion, $1.7 billion and $1.6 billion in dividends, respectively. Such moves indicate the company’s commitment to return value to shareholders and underline its confidence in business. We are expecting steady growth in income, which will translate to steady cash flow, enabling ADP to pay out stable dividends.
Per our estimates, adjusted net income will grow 9.3%, 6% and 10.1%, respectively, in fiscal 2024, 2025 and 2026.
Some Risks
The outsourcing industry is labor intensive and heavily dependent on foreign talent. Rising talent costs due to competition could curb the industry’s growth. ADP, being one of the companies in the industry, is likely to get affected.
ADP's current ratio at the end of first-quarter fiscal 2024 was pegged at 0.98, lower than 0.99 at the previous-quarter end. Decreasing current ratio is not desirable as it indicates that the company may have problems meeting its short-term obligations.
Zacks Rank
ADP currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Investors can consider the following better-ranked stocks:
ROL has an impressive earnings surprise history, beating the consensus mark in three of the four trailing quarters and matching once, the average surprise being 7.2%.
Paychex (PAYX - Free Report) also carries a Zacks Rank of 2. The consensus mark for second-quarter fiscal 2024 earnings is pegged at $1.07 per share, indicating 8.1% year-over-year growth.
PAYX has an impressive earnings surprise history, beating the consensus mark in three of the four trailing quarters and missing once, the average surprise being 2.3%.
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Here's Why You Should Retain ADP Stock in Your Portfolio
Automatic Data Processing, Inc.’s (ADP - Free Report) shares have appreciated 7% in the past six months compared with 6.9% and 7.2% growth of the industry and S&P 500 composite, respectively.
The company has a long-term (three to five years) expected EPS growth rate of 11.7%. Its earnings are expected to increase 11.2% and 9.4% in fiscal 2024 and 2025, year over year, respectively.
Factors That Bode Well
ADP’s three-tier business strategy helps it maintain and grow its strong position as a human capital management (HCM) technology and services provider. The company is focused on delivering a complete suite of cloud-based HCM and HR Outsourcing solutions. It is expanding its international HCM and HRO businesses with established local, in-country software solutions and cloud-based multi-country solutions.
We project revenues from the Employer Services segment to rise 7.3% year over year in fiscal 2024. PEO Services revenues are expected to grow 3.2%.
Automatic Data Processing, Inc. Revenue (TTM)
Automatic Data Processing, Inc. revenue-ttm | Automatic Data Processing, Inc. Quote
ADP has been able to accelerate DataCloud penetration, and increase investments in inside sales, mid-market migrations and service alignment initiatives through its ongoing transformation initiatives. Through these initiatives, it continues to create, improve operations, expand margins and enhance innovation abilities.
ADP has a consistent track record of dividend payment. In fiscal 2023, 2022, and 2021, the company paid $1.9 billion, $1.7 billion and $1.6 billion in dividends, respectively. Such moves indicate the company’s commitment to return value to shareholders and underline its confidence in business. We are expecting steady growth in income, which will translate to steady cash flow, enabling ADP to pay out stable dividends.
Per our estimates, adjusted net income will grow 9.3%, 6% and 10.1%, respectively, in fiscal 2024, 2025 and 2026.
Some Risks
The outsourcing industry is labor intensive and heavily dependent on foreign talent. Rising talent costs due to competition could curb the industry’s growth. ADP, being one of the companies in the industry, is likely to get affected.
ADP's current ratio at the end of first-quarter fiscal 2024 was pegged at 0.98, lower than 0.99 at the previous-quarter end. Decreasing current ratio is not desirable as it indicates that the company may have problems meeting its short-term obligations.
Zacks Rank
ADP currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Investors can consider the following better-ranked stocks:
Rollins (ROL - Free Report) currently carries a Zacks Rank #2 (Buy). For the fourth quarter of 2023, the Zacks Consensus Estimate for earnings is pegged at 20 cents, indicating year-over-year growth of 17.7%.You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
ROL has an impressive earnings surprise history, beating the consensus mark in three of the four trailing quarters and matching once, the average surprise being 7.2%.
Paychex (PAYX - Free Report) also carries a Zacks Rank of 2. The consensus mark for second-quarter fiscal 2024 earnings is pegged at $1.07 per share, indicating 8.1% year-over-year growth.
PAYX has an impressive earnings surprise history, beating the consensus mark in three of the four trailing quarters and missing once, the average surprise being 2.3%.