ADP (ADP) Up 1.9% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Automatic Data Processing (ADP). Shares have added about 1.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is ADP due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Automatic Data Processing Q2 Earnings & Revenues Beat
Automatic Data Processing reported better-than-expected second-quarter fiscal 2022 results.
Adjusted earnings per share of $1.65 beat the Zacks Consensus Estimate by 1.2% and grew 9% year over year. Total revenues of $4.03 billion beat the consensus mark by 1.1% and improved 9% year over year on a reported basis as well as on an organic constant-currency basis.
Segments in Detail
Employer Services revenues of $2.67 billion increased 6% on a reported basis and 7%on an organic constant-currency basis. Pays per control increased 6% year over year.
PEO Services revenues were up 15% year over year to $1.36 billion. Average worksite employees paid by PEO Services were 660,000, up 16% year over year.
Interest on funds held for clientsincreased 1% to $106 million. The company’s average client funds balance increased 28% to $32.2 billion. Average interest yield on client funds declined 40 basis points to 1.3%.
Margins
Adjusted EBIT increased 10% year over year to $930 million. Adjusted EBIT margin grew 20 basis points to 23.1%. The uptick was backed by higher operating revenues, which were partially offset by the effect of increased expenses related to implementation and service, and higher PEO pass through expenses.
Employer Services segment margin increased 40 bps. PEO Services segment margin fell10 bps.
Balance Sheet and Cash Flow
ADP exited second-quarter fiscal 2022 with cash and cash equivalents of $1.75 billion compared with $1.60 billion in the prior quarter. Long-term debt of $2.99 billion was flat sequentially.
The company generated $1.09 billion of cash from operating activities in the quarter. Capital expenditures were $39.9 million. The company paid out dividends worth $393.8 million and repurchased shares worth $462.5 million.
Fiscal 2022 Outlook
ADP raised its fiscal 2022 outlook. The company now expects revenues to register 8-9% growth compared with the expected prior growth rate of 7-8%. Adjusted EPS is now expectedto register 12-14% growth compared with the expected prior growth rate of 11-13%.
The company now expects Employer Services revenues to grow at a rate of about 6% compared with the expected prior growth rate of 5% to 6% and PEO Services revenues at a rate of 13-15% compared with the expected prior growth rate of 11% to 13%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
At this time, ADP has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise ADP has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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