Automatic Data Processing, Inc.’s ADP stock has gained 26.1% year to date, significantly outperforming the 13.7% rally of the Zacks S&P 500 composite.
With an expected long-term earnings per share growth rate of 13% and a market cap of $71.9 billion, ADP seems to be a stock that investors should retain in their portfolio for now.
Factors That Bode Well
ADP has a strong business model, high recurring revenues, good margins, robust client retention and low capital expenditure. The company has a strong cash generating ability that allows it to pursue growth in areas that exhibit true potential.
ADP continues to see strong momentum throughout its down market HCM offerings and strength across its international offerings, multinational solutions in particular. Strategic acquisitions like Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company have strengthened the company’s position in the global HCM market.
Automatic Data Processing, Inc. Revenue (TTM)
Automatic Data Processing, Inc. revenue-ttm | Automatic Data Processing, Inc. Quote
ADP continues to innovate, improve operations and execute its transformation efforts. These initiatives are helping the company expand margins and improve innovation abilities.
Despite riding on significant growth prospects, ADP is not free from overhangs. It has seen increase in expenses as it continues to acquire companies and invest in transformation efforts. The company faces fierce competition and pressure to remain technologically updated to meet varying client demand. Nevertheless, we believe that transformation efforts and acquisitions bode well for ADP in the long run.
Zacks Rank & Key Picks
Currently, ADP has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Business Services sector are Navigant Consulting NCI, Global Payments GPN and NV5 Global NVEE. While Navigant Consulting sports a Zacks Rank #1 (Strong Buy), Global Payments and NV5 Global carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term expected EPS (three to five years) growth rate for Navigant Consulting, Global Payments and NV5 Global is 13.5%, 16.9% and 20%, respectively.
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