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Revenue Growth & Tax Benefit to Drive ADP's Q4 Earnings

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Automatic Data Processing, Inc. (ADP - Free Report) is scheduled to report fourth-quarter fiscal 2018 results on Aug 1, before market open.

The top line is likely to benefit from benefit from acquisitions, solid segmental performance and favorable foreign currency movements. Improving operating performance and lower tax rate are likely to boost the bottom line.

So far this year, shares of ADP have rallied 17.3%, outperforming the industry’s gain of 11.6%

 

Let’s check out the expectations in detail.

Top Line to Improve Year Over Year

The Zacks Consensus Estimate for fourth-quarter fiscal 2018 revenues stands at $3.29 billion, indicating year-over-year growth of 7.3%. The top line is expected to benefit from acquisitions, solid segmental performance and favorable foreign currency movements.

The consensus mark for Employer Services segment revenues stands at $2.48 billion, indicating year-over-year growth of 5.9%. Revenues are likely to be driven by growth in new business bookings and increase in the number of employees on ADP clients' payrolls in the United States. In third-quarter fiscal 2018, segment revenues increased 7% year over year on a reported basis and 4% on an organic constant-currency basis to $2.80 billion.

The consensus estimate for PEO Services segment revenues is pegged at $991 million, indicating year-over-year growth of 11.1%. Revenues are likely to be driven by an increase in the average number of paid PEOworksite employees, which is estimated at 525,000, indicating year-over-year growth of 8.2%.In third-quarter fiscal 2018, segment revenues increased 10% year over year to $1.07 billion. Average worksite employees paid by PEO Services were about 512,000.

In third-quarter fiscal 2018, total revenues increased 8% on a reported basis and 6% on an organic constant currency basis to $3.69 billion.

Bottom Line Likely to Grow Year Over Year

The Zacks Consensus Estimate for earnings per share in the to-be-reported quarter is pegged at 90 cents, indicating year-over-year growth of 38.5%. Improving operating performance and lower tax rate (as a result of Tax Cuts and Jobs Act, which reduced corporate tax rates significantly from 35% to 21%) are likely to boost the company’s bottom line.

In third-quarter fiscal 2018, adjusted earnings increased 16% to $1.52 per share.

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 an Earnings ESP of -0.52% and a Zacks Rank #2. Though ADP carries a favorable Zacks Rank, its negative Earnings ESP makes surprise prediction difficult.

Key Picks

Here are a few 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 their upcoming releases:

Clean Harbors (CLH - Free Report) has an Earnings ESP of +1.67% and a Zacks Rank of 2. The company is scheduled to report second-quarter 2018 results on Aug 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

ICF International (ICFI - Free Report) has an Earnings ESP of +0.11% and a Zacks Rank #2. The company is slated to report second-quarter 2018 results on Aug 2.

Stericycle (SRCL - Free Report) has an Earnings ESP of +0.77% and a Zacks Rank #3. The company is slated to report second-quarter 2018 results on Aug 2.

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