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Three-Tier Business Strategy Aids ADP Shares Amid High Debt

·3 min read

Automatic Data Processing, Inc. ADP is currently benefitting from three-tier business strategy and DataCloud penetration.

The company’s adjusted earnings per share of $1.20 beat the Zacks Consensus Estimate by 6.2% and increased 5.3% year over year. Total revenues of $3.74 billion beat the consensus mark by 2% and rose 11% year over year.

Notably, the stock has gained 46.5% in the past year compared with 42% rise of the industry it belongs to.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

How is ADP Doing?

ADP’s three-tier business strategy is helping it maintain and strengthen its 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.

The company 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.

Meanwhile, ADP’s debt to total capital ratio of 0.34 at the end of fourth-quarter fiscal 2021 was higher than the previous quarter’s 0.26. A high debt-to-capitalization ratio indicates risk of insolvency in challenging times. The company’s cash and cash equivalent of $2.58 billion at the end of the -quarter was below its long-term debt level of $2.99 billion, underscoring that the company doesn’t have enough cash to meet this debt burden. The company had no current debt to clear off.

Zacks Rank and Stocks to Consider

ADP currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Some better-ranked stocks in the broader Zacks Business Services sector are ManpowerGroup Inc. MAN, Equifax EFX and TransUnion TRU. All the stocks carry a Zacks Rank #2 (Buy).

The long-term expected earnings per share (three to five years) growth rate for ManpowerGroup, Equifax and TransUnion is pegged at 23.1%, 15.2% and 22%, respectively.


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ManpowerGroup Inc. (MAN): Free Stock Analysis Report

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

Equifax, Inc. (EFX): Free Stock Analysis Report

TransUnion (TRU): Free Stock Analysis Report

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Zacks Investment Research