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Here's Why You Should Retain ADP Stock in Your Portfolio

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·3 min read
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Automatic Data Processing, Inc.’s ADP shares have gained 34.8% over the past year. The company has a long-term (three to five years) expected EPS growth rate of 12%.

Automatic Data Processing, Inc. Price

Automatic Data Processing, Inc. Price
Automatic Data Processing, Inc. Price

Automatic Data Processing, Inc. price | Automatic Data Processing, Inc. Quote

What’s Behind the Rally?

ADP’s three-tier business strategy is helping it to maintain and grow its strong position as a human capital management (“HCM”) technology and services provider. The company is focused on delivering a complete suite of cloud-based HCM and HR Outsourcing solutions. It is expanding its international HCM and HRO businesses with established local, in-country software solutions and cloud-based multi-country solutions.

ADP has been able to accelerate DataCloud penetration, and increase investments in inside sales, mid-market migrations and service-alignment initiatives through its ongoing transformation initiatives. Through these programs, the company continues to innovate, improve operations, expand margins and enhance innovation abilities.

ADP had a total debt of $1.99 billion at the end of third-quarter fiscal 2021, flat sequentially. Debt-to-capital ratio of 0.25 was lower than the industry's 0.35. A lower debt-to-capitalization ratio indicates that the proportion of debt to finance the company’s assets is declining, and so is the risk of insolvency. Further, the company did not have any short-term debt at the end of the quarter.

Expense Woes Stay

ADP is seeing increase in expenses as it continues to acquire companies and invest in transformation efforts. Total expenses of $3 billion increased 1.3% year over year in the third quarter of fiscal 2021. In fiscal 2020, ADP’s total expenses of $11.5 billion increased 3% year over year. These expenses increased 3.7% year over year in fiscal 2019, 7.7% in fiscal 2018 and 6.2% in fiscal 2017. Hence, the bottom line is likely to remain under pressure going forward.

Zacks Rank and Stocks to Consider

ADP currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector includes Trane Technologies TT, Cross Country Healthcare CCRN and Charles River Associates CRAI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The long-term expected earnings per share (three to five years) growth rate for Trane Technologies, Cross Country Healthcare and Charles River is pegged at 21.5%, 10.5% and 15.5%, respectively.

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Automatic Data Processing, Inc. (ADP) : Free Stock Analysis Report

Charles River Associates (CRAI) : Free Stock Analysis Report

Cross Country Healthcare, Inc. (CCRN) : Free Stock Analysis Report

Trane Technologies plc (TT) : Free Stock Analysis Report

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