Automatic Data Processing (ADP) Q1 Earnings: Will it Beat?

We expect Automatic Data Processing, Inc.ADP to beat expectations when it reports first-quarter fiscal 2017 results on Nov 2. In the last quarter, the company reported a positive earnings surprise of 2.99%. Notably, the company delivered positive earnings surprises in three out of the last four quarters, with an average positive earnings surprise of 2.04%.

Why a Likely Positive Surprise?

Our proven model shows that Automatic Data Processing is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP:Earnings ESP , which represents the difference between the Most Accurate estimate (80 cents per share) and the Zacks Consensus Estimate (77 cents per share), stands at +3.90%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank #3 (Hold): Note that stocks with a Zacks Rank of #1 (Strong Buy), 2 (Buy) and 3 (Hold) have a significantly higher chance of beating earnings estimates. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of Automatic Data Processing's Zacks Rank #3 and +3.90% ESP makes us very confident in looking for an earnings beat.

What is Driving the Better-Than-Expected Earnings?

Automatic Data Processing holds a dominant position in the payroll processing and human capital management market, primarily due to its robust product portfolio. We believe that the company's higher revenue per client and a decent customer retention ratio place it in an advantageous position.

However, in the past, the company has witnessed some negative impact on its retention rate owing to migration from the legacy business and increasing competition in the sphere. Furthermore, we expect the company's investments in its new initiatives to weigh on its upcoming quarterly earnings.

In addition, a volatile macroeconomic environment, strengthening U.S. dollar and increasing competition from the likes of Paychex, Equifax Inc. EFX , Insperity, Inc. and TriNet Group are the other factors likely to affect earnings this season.

We note that Automatic Data Processing's DataCloud technology is gradually gaining traction in the corporate sector. Notably, in Aug 2016, Follett Corporation adopted Automatic Data Processing's technology to streamline the requirements of the organization. This growing trend of adoptions is likely to get reflected in theto-be reported quarter's earnings.

AUTOMATIC DATA Price and EPS Surprise


Other Stocks to Consider

Here are some other companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Inovalon Holdings, Inc. INOV with an Earnings ESP of +50.00% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

SITO Mobile, Ltd. SITO with an Earnings ESP of +100.00% and a Zacks Rank #1

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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.

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