Automatic Data Processing: 10 Different Insiders Have Sold Shares This Year

Jan. 8.14 | About: Automatic Data (ADP)

In this article, I will feature one tech stock that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

Automatic Data Processing (NASDAQ:ADP) provides technology-based outsourcing solutions to employers and vehicle retailers and manufacturers worldwide.

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Insider selling during the last 30 days

Here is a table of Automatic Data Processing's insider-trading activity during the last 30 days by insider.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Carlos Rodriguez CEO Jan 2-3 47,500 Yes 130,084 shares + 142,500 options 14.8%
Anish Rajparia VP Jan 2-3 15,975 Yes 36,497 shares + 5,000 options 27.8%
Jan Siegmund VP Jan 2 28,170 Yes 42,990 shares 39.6%
Steven Anenen VP Jan 2 54,314 Yes 72,079 shares 43.0%
Regina Lee VP Jan 2 53,555 Yes 107,928 shares 33.2%
Michael Bonarti VP Jan 2 9,290 Yes 23,845 shares 28.0%
Dermot O'Brien VP Jan 2 6,600 Yes 20,824 shares + 22,500 options 13.2%
John Ayala VP Jan 2 4,097 Yes 11,832 shares + 775 options 24.5%
Edward Flynn VP Jan 2 10,340 Yes 33,341 shares 23.7%
Alan Sheiness VP Jan 2 853 Yes 45,004 shares 1.9%
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There have been 230,694 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 plan.

SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.

For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.

In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.

Insider selling by calendar month

Here is a table of Automatic Data Processing's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
January 2014 230,694 0
December 2013 0 0
November 2013 35,257 0
October 2013 0 0
September 2013 0 0
August 2013 16,571 0
July 2013 0 0
June 2013 0 0
May 2013 23,424 0
April 2013 0 0
March 2013 108,649 0
February 2013 10,069 0
January 2013 28,690 0
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There have been 453,354 shares sold, and there have been zero shares purchased by insiders since January 2013. January 2014 has seen the most insider selling.

Financials

Automatic Data Processing reported the fiscal 2014 first-quarter, which ended September 30, financial results on October 30 with the following highlights:

Revenue $2.8 billion
Net income $328.6 million
Cash $1.7 billion
Debt $2.8 billion
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Outlook

Automatic Data Processing's fiscal 2014 guidance is as follows:

Revenue growth 7%
EPS growth 8%-10%
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Competition

Automatic Data Processing's competitors include Insperity (NYSE:NSP), and Paychex (NASDAQ:PAYX). Here is a table comparing these companies.

Company ADP NSP PAYX
Market Cap: 38.87B 922.82M 16.47B
Employees: 60,000 2,200 12,600
Qtrly Rev Growth (yoy): 0.08 0.06 0.07
Revenue: 11.51B 2.23B 2.40B
Gross Margin: 0.49 0.18 0.72
EBITDA: 2.41B 87.19M 1.04B
Operating Margin: 0.18 0.03 0.39
Net Income: 1.39B 35.09M 589.50M
EPS: 2.94 1.40 1.61
P/E: 27.46 25.78 28.09
PEG (5 yr expected): 2.55 1.73 2.65
P/S: 3.34 0.41 6.85
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Automatic Data Processing has the second-highest P/S ratio among these three companies.

Here is a table of these competitors' insider-trading activities during the last 30 days.

Company Insider buying / shares Insider selling / shares
NSP 0 36,500
PAYX

0

0
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Only Automatic Data Processing has seen intensive insider selling during the last 30 days.

Conclusion

There have been 10 different insiders selling Automatic Data Processing, and there have not been any insiders buying Automatic Data Processing during the last 30 days. Nine of these 10 insiders decreased their holdings by more than 10%. Automatic Data Processing has an insider ownership of 0.20%.

There are 10 analyst buy ratings, 12 neutral ratings, and two sell ratings with an average price target of $78.34. Before entering short Automatic Data Processing, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are bearish analyst price targets, and the intensive insider-selling activity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.