Back to top

Image: Bigstock

Will Revenue Growth & Tax Benefit Aid ADP's Q3 Earnings?

Read MoreHide Full Article

Automatic Data Processing, Inc. (ADP - Free Report) is scheduled to report third-quarter fiscal 2018 results on May 2, before market open.

The top line is expected to benefit from higher organic growth, favorable foreign currency movements and acquisitions, while the bottom line is likely to be positively impacted by tax benefits.

We observe that shares of ADP have rallied 13.5% over the past year, significantly outperforming the S&P 500’s gain of 11.6%.

 

Top Line to Improve Year Over Year

The Zacks Consensus Estimate for revenues for the to-be-reported quarter stands at $3,667 million, indicating year-over-year growth of 7.5%. The top line is expected to benefit from higher organic growth, favorable foreign currency movements and buyouts.

Employer Services segment revenues are estimated to be $2,767 million, indicating year-over-year growth of 5.3%. Revenues are likely to be driven by increasing number of employees on ADP clients' payrolls in the United States. In second-quarter fiscal 2018, segment revenues increased 6% year over year to $2,437.6 million.

The Zacks Consensus Estimate for PEO Services segment revenues is pegged at $1,091 million, indicating year-over-year growth of 12%. Revenues are likely to be driven by an increase in the number of worksite employees. In second-quarter fiscal 2018, segment revenues increased 15% year over year to $945.3 million.

In second-quarter fiscal 2018, total revenues rose 8.3% from the year-ago quarter to $3.24 billion. Organically, revenues increased 7% year over year.

Earnings Likely to Grow on Tax Benefits

The new tax (Tax Cuts and Jobs Act, effective from December 2017) law, which reduced corporate tax rates significantly from 35% to 21%, will benefit ADP’s earnings in the to-be-reported quarter. Notably, the consensus estimate for earnings per share is pegged at $1.44, indicating year-over-year growth of 9.9%.

In the last reported quarter, adjusted earnings rose 13.8% from the year-ago quarter to 99 cents per share. The company also witnessed a one-time tax benefit of $46 million in the second quarter of fiscal 2018.

Our Model Doesn’t Suggest a Beat

Please note that according to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

ADP has a Zacks Rank #2 and an Earnings ESP of -0.46%, a combination that makes surprise prediction difficult.

Stocks to Consider

Here are some stocks from the broader Business Services sector that investors may consider, as our model shows that these have the right combination of elements to beat on earnings in first-quarter 2018:

Mastercard Incorporated (MA - Free Report) has an Earnings ESP of +0.03% and a Zacks Rank #2. The company is slated to report quarterly numbers on May 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

WEX Inc. (WEX - Free Report) has an Earnings ESP of +0.44% and a Zacks Rank #2. The company is slated to report quarterly results on May 3.

FLEETCOR Technologies, Inc. has an Earnings ESP of +0.79% and a Zacks Rank #2. The company is slated to report quarterly numbers on May 3.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Mastercard Incorporated (MA) - free report >>

Automatic Data Processing, Inc. (ADP) - free report >>

WEX Inc. (WEX) - free report >>

Published in