Automatic Data Processing, Inc. ADP is benefiting from its strong business model as well as its three-tier business strategy.
ADP’s earnings and revenues for 2023 are expected to improve 15.8% and 8.5%, respectively, from the corresponding year-ago reported figures. Shares of ADP have jumped 11.5% in the past six-month period compared with 4.8% rise of the industry it belongs to.
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Factors That Augur Well
ADP has a strong business model, high recurring revenues, good margins, robust client retention and low capital expenditure. It has a strong cash generating ability that allows it to pursue growth in areas that exhibit true potential. Adjusted EBIT margin grew 30 basis points to 24.1% in first-quarter fiscal 2023.
ADP’s three-tier business strategy helps it to maintain and grow its strong position as a human capital management (HCM) technology and services provider. The company is focused on delivering a complete suite of cloud-based HCM and HR Outsourcing solutions. It is expanding its international HCM and HRO businesses with established local, in-country software solutions and cloud-based multi-country solutions.
A Key Risk
ADP's current ratio at the end of first-quarter fiscal 2023 was pegged at 0.97, lower than the current ratio of 0.99 reported at the end of fourth-quarter fiscal 2022 and the prior-year quarter’s 1.05. Decreasing current ratio is not desirable as it indicates that the company may have problems meeting its short-term debt obligations.
Zacks Rank and Stocks to Consider
ADP currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the broader Zacks Business Services sector are Booz Allen Hamilton Holding Corporation BAH and Cross Country Healthcare, Inc. CCRN.
Booz Allen carries a Zacks Rank #2 (Buy) at present. BAH has a long-term earnings growth expectation of 8.9%.
Booz Allen delivered a trailing four-quarter earnings surprise of 8.8%, on average.
Cross Country Healthcare is currently Zacks #2 Ranked. CCRN has a long-term earnings growth expectation of 6%.
CCRN delivered a trailing four-quarter earnings surprise of 10.1%, on average.
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