Markets

ADP Rides on Strategic Acquisitions and Strong Business Model

In a year's time, shares of Automatic Data Processing, Inc.ADP have gained 28.6% compared with the industry 's rise of 13.6%.

Recently, the company reported impressive first-quarter fiscal 2019 results, with earnings and revenues beating the Zacks Consensus Estimate. Adjusted earnings per share (EPS) of $1.20 beat the consensus estimate by 10 cents and improved on a year-over-year basis. Total revenues of $3.32 billion outpaced the consensus mark by $40.6 million and improved 8% on a reported basis and 7% on a constant-currency (cc) basis.

ADP has an impressive surprise history. It beat estimates in each of the trailing four quarters, the average being 7%. For the second quarter, the consensus mark inched up 1.7% in the past 30 days.

Acquisitions: A Key Growth Strategy

ADP is reinforcing stake in the global human capital management (HCM) market on the back of strategic acquisitions like Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company. These buyouts will strengthen ADP's customer base and help it expand operations in international markets. The company continues to pursue acquisitions that strategically fit overall business mix and are easy to integrate in the long term.

Strong Business Model

The company has a strong business model, high recurring revenues, good margins, robust client retention and low capital expenditure. Moreover, it has a strong cash generating ability that allows it to pursue growth in areas that exhibit true potential. ADP has a strong pipeline for new business bookings. Also, it continues to innovate, improve operations and invest in the sales force.

Sound Balance Sheet

ADP possesses a strong balance sheet. As of Sep 30, 2018, ADP had cash and cash equivalents of $1.49 billion. It continues using excess cash to aggressively buy back shares and pay out dividends. Recently, the company hiked quarterly cash dividend by 25% to $0.79 per share. In the last reported quarter, ADP returned roughly $0.53 billion via dividends and share repurchases. We believe that this strong cash position will help the company to continue with shareholder-friendly activities and also pursue strategic acquisitions as well as investments on product development in the long run.

Zacks Rank & Key Picks

Currently, ADP carries a Zacks Rank #2 (Buy). A few better-ranked stocks in the broader Business Services sector include General Finance Corporation GFN , Heidrick & Struggles International, Inc. HSII and Insperity, Inc. NSP , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

The long-term expected EPS (three to five years) growth rate for General Finance Corporation, Heidrick & Struggles and Insperity is 11%, 13.5% and 18%, respectively.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

General Finance Corporation (GFN): Free Stock Analysis Report

Insperity, Inc. (NSP): Free Stock Analysis Report

Heidrick & Struggles International, Inc. (HSII): Free Stock Analysis Report

Automatic Data Processing, Inc. (ADP): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

HSII NSP ADP

Other Topics

Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More