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Business Expansion, Acquisitions Aid ADP Amid Competition
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Automatic Data Processing, Inc.’s (ADP - Free Report) shares have gained 8% in the past three months, outperforming the 4.8% rally of the industry it belongs to.
The company recently reported impressive second-quarter fiscal 2024 results, wherein both earnings and revenues beat their respective Zacks Consensus Estimate. Adjusted earnings per share of $2.13 beat the consensus estimate by 1.4% and grew 8.7% from the year-ago quarter’s figure. Total revenues of $4.67 billion surpassed the consensus estimate by 0.2% and improved 6.3% from the year-ago quarter’s reading on a reported basis as well as at cc.
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.
Strategic acquisitions like Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company have strengthened ADP’s customer base and are helping 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. The recent acquisition of Sora enhanced its strategy to streamline HR processes through automation, combining Sora's user-friendly platform with ADP's HCM solutions for improved efficiency and employee experiences.
ADP has a consistent track record of dividend payments. In fiscal 2023, 2022 and 2021, it 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, the company’s adjusted net income will grow 9.3%, 6% and 10.1%, respectively, in fiscal 2024, 2025 and 2026.
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 faces significant competition in each of its product lines. Both its Employer services and PEO services segments compete with other independent business outsourcing companies in most of their operating regions.
Huron Consulting has an expected earnings growth rate of 13.7% for 2024. The company has a trailing four-quarter earnings surprise of 25.9%, on average. The stock has appreciated 18.5% in the past year.
Stantec has an expected earnings growth rate of 15.8% for 2024. The company has a trailing four-quarter earnings surprise of 4.8%, on average. The stock has appreciated 43% in the past year.
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Business Expansion, Acquisitions Aid ADP Amid Competition
Automatic Data Processing, Inc.’s (ADP - Free Report) shares have gained 8% in the past three months, outperforming the 4.8% rally of the industry it belongs to.
The company recently reported impressive second-quarter fiscal 2024 results, wherein both earnings and revenues beat their respective Zacks Consensus Estimate. Adjusted earnings per share of $2.13 beat the consensus estimate by 1.4% and grew 8.7% from the year-ago quarter’s figure. Total revenues of $4.67 billion surpassed the consensus estimate by 0.2% and improved 6.3% from the year-ago quarter’s reading on a reported basis as well as at cc.
Automatic Data Processing, Inc. Price
Automatic Data Processing, Inc. price | Automatic Data Processing, Inc. Quote
How is ADP Doing?
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.
Strategic acquisitions like Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company have strengthened ADP’s customer base and are helping 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. The recent acquisition of Sora enhanced its strategy to streamline HR processes through automation, combining Sora's user-friendly platform with ADP's HCM solutions for improved efficiency and employee experiences.
ADP has a consistent track record of dividend payments. In fiscal 2023, 2022 and 2021, it 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, the company’s adjusted net income will grow 9.3%, 6% and 10.1%, respectively, in fiscal 2024, 2025 and 2026.
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 faces significant competition in each of its product lines. Both its Employer services and PEO services segments compete with other independent business outsourcing companies in most of their operating regions.
Zacks Rank and Stocks to Consider
ADP currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Business Services sector are Huron Consulting (HURN - Free Report) and Stantec (STN - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Huron Consulting has an expected earnings growth rate of 13.7% for 2024. The company has a trailing four-quarter earnings surprise of 25.9%, on average. The stock has appreciated 18.5% in the past year.
Stantec has an expected earnings growth rate of 15.8% for 2024. The company has a trailing four-quarter earnings surprise of 4.8%, on average. The stock has appreciated 43% in the past year.