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ADP (ADP) Down 0.8% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Automatic Data Processing (ADP). Shares have lost about 0.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ADP due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Automatic Data Processing Surpasses Q4 Earnings & Revenues Estimates

Automatic Data Processing reported better-than-expected fourth-quarter fiscal 2021 results.

Adjusted earnings per share of $1.20 beat the Zacks Consensus Estimate by 6.2% and grew 5.3% year over year. Total revenues of $3.74 billion beat the consensus mark by 2% and improved 11% year over year on a reported basis and 9% on an organic constant-currency basis.

Segments in Detail

Employer Services revenues of $2.53 billion increased 10% on a reported basis and 8% on an organic constant-currency basis. Pays per control increased 8% year over year. New business bookings increased 174%.

PEO Services revenues were up 12% year over year to $1.21 billion. Average worksite employees paid by PEO Services were 616,000, up 12% year over year.

Interest on funds held for clients decreased 10% to $103 million. The company’s average client funds balance increased 22% to $29.3 billion. Average interest yield on client funds declined 50 basis points to 1.4%.

Margins

Adjusted EBIT increased 4% year over year to $678 million. Adjusted EBIT margin declined 120 basis points to 18.1%. The downfall was backed by rise in selling expenses and other incentive compensation costs, implementation costs, and other growth investments, which were partially offset by higher revenues.

Employer Services segment margin decreased 90 bps. PEO Services segment margin grew 340 bps.

Balance Sheet and Cash Flow

ADP exited fourth-quarter fiscal 2021 with cash and cash equivalents of $2.58 billion compared with $1.89 billion in the prior quarter. Long-term debt was $2.98 billion compared with $1.99 billion in the prior quarter.

The company generated $652.8 million of cash from operating activities in the quarter. Capital expenditures were $33.3 million. The company paid out dividends worth $396 million and repurchased shares worth $469.8 million.

Fiscal 2022 Outlook

ADP expects fiscal 2022 revenues to register growth of 6% to 7%. Adjusted EPS is expected to register 9-11% growth.

The company expects Employer Services revenues to grow at a rate of 4% to 6% and PEO Services revenues at a rate of 9% to 11%..

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, ADP has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, ADP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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