Entering text into the input field will update the search result below

Automatic Data Processing Gets A Catalyst From Revised Outlook


  • Automatic Data Processing's strong FQ2 results have the company on track for double-digit earnings gains for the fiscal year.
  • ADP's upgraded earnings guidance provides a catalyst for the stock.
  • The valuation and growth will support a double-digit stock gain over the next year.

Automatic Data Processing (NASDAQ:ADP) exceeded estimates for both revenue and earnings for FQ2. Revenue increased 8.3% y-o-y and exceeded estimates by $70 million. Adjusted diluted EPS increased 30% y-o-y and exceeded estimates by $0.16 per share or 13.6%.

The strong results led the company to increase guidance for the full fiscal year which ends in June 2019. ADP now expects adjusted diluted EPS to increase 17% to 19% for FY19. This is up from the previous range of a 15% to 17% gain.

My thesis is that the increased guidance, ADP's overall growth, and reasonable valuation will drive the stock for a strong double-digit gain over the next year.

ADP's Segment Growth

Automatic Data Processing is achieving growth in their primary business segments. The company provides services for companies that encompass recruitment to retirement.

ADP operates two main segments: Employer Services (71% of total revenue) and Professional Employer Organization [PEO] Services (29% of total revenue). The Employer Services segment provides small to large businesses with human resources outsourcing and tech services, which include cloud-based solutions. The PEO segment offers a co-employment model for human resources outsourcing solutions.

ADP is expected to grow revenue in the Employer Services segment by 5% to 6% for FY19. The company is also expecting margins for this segment to increase 175-200 basis points and new business bookings growth of 6% to 8% for FY19. The margin improvement in this segment is important for ADP's earnings growth since Employer Services comprises 71% of total revenue.

The PEO segment also looks strong as ADP expects full-year revenue growth of 9% to 10%. However, margins for the PEO segment are expected to remain flat for FY19.

ADP is projecting to achieve total revenue growth of 6% to 7% for FY19. That will help drive the double-digit expected gains in earnings growth

This article was written by

David Zanoni profile picture
Award Winning Kirk Spano's All-In-One Investing Service

Through diligent analysis, he is ranked in the top 1% of blogging analysts on Tipranks.com for performance and accuracy. David previously contributed to Kirk Spano's Margin of Safety Investing [MoSI] Marketplace Service and Risk Research Inc.

David focuses on growth & momentum stocks that are reasonably priced and likely to outperform the market over the long-term. He is a long term investor of quality stocks and uses options for strategy.

David told investors to buy in March 2009 at the bottom of the financial crisis. The S&P 500 increased 367% and the Nasdaq increased 685% from 2009 through 2019.

He wants to help make people money by investing in high-quality growth stocks.

Analyst’s Disclosure: I/we 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.

The article is for informational purposes only (not a solicitation to buy or sell stocks). I am not a registered investment advisor. Investors should do their own research or consult a financial advisor to determine what investments are appropriate for their individual situation. This article expresses my opinions and I cannot guarantee that the information/results will be accurate. Investing in stocks involves risk and could result in losses.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.