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Bill Ackman: ADP's share price can double by June 2021

Alexis Christoforous and Myles Udland of Yahoo Finance discuss comments by activist investor Bill Ackman about President Trump.
Alexis Christoforous and Myles Udland of Yahoo Finance discuss comments by activist investor Bill Ackman about President Trump.

Activist investor Bill Ackman, the founder of $11 billion Pershing Square Capital Management, says that Automatic Data Processing (ADP) is “materially under-performing its potential.”

“This was the dominant company in the payroll space and in HR generally,” Ackman said on a call with investors as he delivered a 168-slide deck presentation. He added that the company has “lost significant ground” against its competitors, most notably in the enterprise and mid-market space.

He pointed to a deceleration in its Employer Services revenue growth despite tailwinds like the Affordable Care Act.

ADP offers recruit-to-retire services and HR solutions. It has an enormous presence in the U.S., paying 26 million, or one in six, U.S. workers, and 13 million workers globally. During the second quarter, Ackman snapped up just over 35 million shares of ADP, making it Pershing Square’s largest position. Based on the current stock price, Pershing Square’s stake was last valued at around $3.89 billion. Ackman had invested in the company in the past.

In the presentation, Pershing Square outlined how it believes ADP’s shares could double in less than four years, estimating that the share price can rise to $221 to $255 by June 2021.

While acknowledging that the company has historically performed well, Pershing Square said there are some things holding it back.

For one, Pershing Square described the company’s culture as “insular” and “innovation lacking” and this has also resulted in outdated and inefficient technology.

“The HCM industry is rapidly evolving. ADP needs to urgently become an efficient world-class technology company.”

At the beginning of the call, Ackman referred to this as a “six-month research project” where he reviewed 10-K and 10-Q filings, proxy statements, and spoke to more than 85 industry executives, including former senior employees of ADP, employees of competitors, consultants, brokers, and people who interact with players in the HR business.

Pershing Square has submitted Ackman and two others as nominees for board seats. Ackman, however, hasn’t exactly been welcomed with opened arms. Even Ackman acknowledged on the call the reaction has been hostile.

On the call, Ackman said the company has “done a good job hiding the problem.” He added that they’ve “become very good at explaining away their underperformance versus competitors.”

In an interview with CNBC last week, ADP CEO Carlos Rodriguez slammed Ackman’s research as well as the way he’s been handling himself.

“It kind of reminds me a little bit of a spoiled brat in school asking a teacher for an extension on their homework,” Rodriquez told CNBC.


Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.

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