Market Positioning Aids Automatic Data (ADP) Amid Low Liquidity
Automatic Data Processing, Inc. ADP is benefiting from a robust business model that generates recurring revenues along with both internal growth and strategic acquisitions. However, low liquidity remains a concern.
Automatic Data Processing reported better-than-expected third-quarter fiscal 2023 results. Adjusted earnings per share of $2.52 (excluding 1 cent from non-recurring items) beat the Zacks Consensus Estimate by 4.1% and grew 14% from the year-ago fiscal quarter’s figure. Total revenues of $4.9 billion beat the consensus estimate by 0.9% and improved 9.2% from the year-ago fiscal quarter’s reading on a reported basis and 10% on an organic constant-currency basis.
Current situation of ADP
ADP's robust business model is characterized by high recurring revenues, strong margins, excellent client retention, low capital expenditure and a formidable cash-generating ability, which enables it to pursue growth opportunities in promising areas.
Automatic Data Processing, Inc. Revenue (TTM)
Automatic Data Processing, Inc. revenue-ttm | Automatic Data Processing, Inc. Quote
ADP's strong position as a human capital management (HCM) technology and services provider is maintained and strengthened through its three-tier business strategy. This strategy involves delivering a comprehensive range of cloud-based HCM and HR Outsourcing solutions, as well as expanding its international presence with localized software solutions and multi-country cloud-based offerings.
Through its ongoing transformation initiatives, ADP has successfully accelerated the adoption of DataCloud and intensified its investment in inside sales, mid-market migrations and service alignment initiatives. These strategic efforts enable the company to foster innovation, enhance operational efficiency, drive margin expansion and strengthen its overall innovation capabilities. As a result, ADP continues to make significant progress in improving its operations and positioning itself for growth.
ADP has made strategic acquisitions such as Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company, which have not only bolstered its customer base but also facilitated the expansion of its operations in international markets. These acquisitions align with ADP's overall business mix and are chosen for their long-term integration potential. The company remains committed to pursuing further acquisitions that strategically complement its business and can be seamlessly integrated into its operations over the long run.
Some Concerning Points
ADP's current ratio at the end of third-quarter fiscal 2023 was pegged at 1.00, lower than the current ratio of 1.01 reported at the end of third-quarter fiscal 2022. It indicates that the company may have problems meeting its short-term debt obligations.
Zacks Rank and Stocks to Consider
ADP currently carries a Zacks Rank #3 (Hold).
Investors interested in the broader Zacks Business Services can consider the following stocks:
Green Dot GDOT: For second-quarter 2023, the Zacks Consensus Estimate of Green Dot’s revenues suggests a decline of 4.8% year over year to $338.2 million and the same for earnings indicates a 59.5% plunge to 30 cents per share. The company has an impressive earning surprise history, beating the consensus mark in all four trailing quarters, the average surprise being 37.3%.
GDOT has a Value Score of A and a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Maximus MMS: For second-quarter 2023, the Zacks Consensus Estimate of Maximus’ revenues suggests an increase of 6.9% year over year to $1.2 billion and the same for earnings indicates a 46.2% rise to $1.14 per share. The company has an impressive earning surprise history, beating the consensus mark in three instances and missing on one instance, the average surprise being 9.6%.
MMS has a VGM Score of B along with a Zacks Rank of 1.
Rollins ROL: For second-quarter 2023, the Zacks Consensus Estimate of Rollins’ revenues suggests growth of 12.6% year over year to $803.6 million and the same for earnings indicates a 15% increase to 23 cents per share. The company has an impressive earning surprise history, beating the consensus mark in three of the four trailing quarters and missing on one instance, the average surprise being 5.53%.
ROL currently carries a Zacks Rank #2 (Buy) and a Growth Score of A.
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Automatic Data Processing, Inc. (ADP) : Free Stock Analysis Report
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