As you might know, Automatic Data Processing, Inc. (NASDAQ:ADP) recently reported its third-quarter numbers. It was a credible result overall, with revenues of US$4.0b and statutory earnings per share of US$1.90 both in line with analyst estimates, showing that Automatic Data Processing is executing in line with expectations. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Following last week's earnings report, Automatic Data Processing's 14 analysts are forecasting 2021 revenues to be US$14.7b, approximately in line with the last 12 months. Statutory per share are forecast to be US$5.88, approximately in line with the last 12 months. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$15.5b and earnings per share (EPS) of US$6.52 in 2021. The analysts are less bullish than they were before these results, given the reduced revenue forecasts and the small dip in earnings per share expectations.
Despite the cuts to forecast earnings, there was no real change to the US$156 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Automatic Data Processing analyst has a price target of US$188 per share, while the most pessimistic values it at US$135. This shows there is still a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Automatic Data Processing's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 0.1%, a significant reduction from annual growth of 6.4% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 11% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Automatic Data Processing is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. The consensus price target held steady at US$156, with the latest estimates not enough to have an impact on their price targets.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have estimates - from multiple Automatic Data Processing analysts - going out to 2024, and you can see them free on our platform here.
Even so, be aware that Automatic Data Processing is showing 1 warning sign in our investment analysis , you should know about...
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