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Will Automatic Data Processing (ADP) Beat in Q3 Earnings?

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Automatic Data Processing, Inc. (ADP - Free Report) is scheduled to report third-quarter fiscal 2019 results on May 1, before market open.

So far this year, shares of ADP have gained 24.9% compared with the 26% rise of the industry it belongs to and 16.9% increase of the Zacks S&P 500 composite.

 

Let's check out how things are shaping up for the announcement.

Top Line to Improve Year Over Year

The Zacks Consensus Estimate for third-quarter fiscal 2019 revenues stands at $3.90 billion, indicating growth of 5.7% from the year-ago reported figure. The top line is expected to benefit from acquisitions and business from New Business Bookings, which is likely to be partially offset by foreign currency movements. In second-quarter fiscal 2019, total revenues of $3.50 billion increased 8% year over year.

Going by segments, the consensus estimate for PEO Services revenues is pegged at $1.15 billion, indicating year-over-year growth of 8%. The expected growth is likely to be driven by increase in the average number of worksite employees and contribution from State Unemployment Insurance ("SUI") revenues. In second-quarter fiscal 2019, segment revenues of $1.06 billion increased 12% year over year.

The consensus mark for Employer Services segment revenues stands at $2.76 billion, indicating decline of 1.4% from the year-ago period reported figure. The expected decline is likely to be due to unfavorable foreign currency movements, which are likely be partially offset by contributions from new business started from New Business Bookings, acquisitions and interest earned on funds held for clients. In second-quarter fiscal 2019, segment revenues of $2.45 billion increased 7% year over year.

Bottom Line to Rise as Well

The Zacks Consensus Estimate for earnings per share in the to-be reported quarter is pegged at $1.69, indicating growth of 11.2% from the year-ago quarter reported quarter. The bottom line is expected to benefit from solid revenue growth, improved operating performance, lower tax rate (as a result of Tax Cuts and Jobs Act) and fewer shares outstanding.

In second-quarter fiscal 2019, adjusted earnings per share of $1.34 increased 30% year over year.

Our Model Suggests a Beat

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 when the company is seeing negative estimate revisions. 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 +1.42%, a combination that increases the odds of an earnings beat.

Other Stocks That Warrant a Look

Here are a few stocks from the broader Zacks 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 2019:

WEX (WEX - Free Report) has an Earnings ESP of +1.78% and a Zacks Rank #2 (Buy). The company is scheduled to report results on May 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

FLEETCOR Technologies has an Earnings ESP of +0.38% and a Zacks Rank #2. The company is scheduled to report results on May 7.

EVERTEC (EVTC - Free Report) has an Earnings ESP of +3.73% and a Zacks Rank #3. The company is slated to release results on May 1.

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