As Automatic Data Processing, Inc. (NASDAQ:ADP) released its earnings announcement on 30 June 2019, analysts seem cautiously optimistic, as a 15% increase in profits is expected in the upcoming year, against the past 5-year average growth rate of 9.3%. Presently, with latest-twelve-month earnings at US$2.3b, we should see this growing to US$2.6b by 2020. Below is a brief commentary around Automatic Data Processing's earnings outlook going forward, which may give you a sense of market sentiment for the company. Investors wanting to learn more about other aspects of the company should research its fundamentals here.
What can we expect from Automatic Data Processing in the longer term?
The view from 17 analysts over the next three years is one of positive sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. I've plotted out each year's earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of ADP's earnings growth over these next few years.
This results in an annual growth rate of 12% based on the most recent earnings level of US$2.3b to the final forecast of US$3.3b by 2022. This leads to an EPS of $7.66 in the final year of projections relative to the current EPS of $5.27. With a current profit margin of 16%, this movement will result in a margin of 19% by 2022.
Future outlook is only one aspect when you're building an investment case for a stock. For Automatic Data Processing, I've compiled three key aspects you should further research:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is Automatic Data Processing worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Automatic Data Processing is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Automatic Data Processing? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.