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Acquisitions Aid Automatic Data Processing Amid Rising Expenses
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Automatic Data Processing, Inc. (ADP - Free Report) has had an impressive run over the year-to-date period. The stock has gained 19.3% compared with the 14.4% rally of the industry it belongs to and the 19% rise of the Zacks S&P 500 composite in the said period.
YTD Price Perfomance
Image Source: Zacks Investment Research
ADP has reported an impressive fourth-quarter fiscal 2024. Earnings per share of $2.1 beat the consensus estimate by 1% and increased 10.6% from the year-ago quarter. Total revenues of $4.8 billion surpassed the consensus estimate by a slight margin and grew 6.5% from the year-ago quarter.
How is ADP Doing?
Automatic Data Processing’s three-tier business strategy assists it in maintaining its market position and thriving as a human capital management (HCM) technology and service provider. It is focused on delivering a complete suite of cloud-based HCM and human resource outsourcing (HRO) solutions. ADP is expanding its international HCM and HRO businesses with established local, in-country software solutions and cloud-based multi-country solutions.
Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham are a few of the acquired companies that have strengthened ADP’s customer base and assisted it in expanding operations in the international markets. Automatic Data Processing continues to acquire companies that strategically fit its overall business mix and are easy to integrate over the long term. The recent acquisition of Honu HR, Inc. DBA Sora improved its strategy to streamline HR processes through automation, combining Sora's user-friendly platform with ADP's HCM solutions for enhanced efficiency and employee experiences.
Dividend-seeking investors will find these shares appealing. ADP paid out $1.9 billion in dividends in fiscal 2023, $1.7 billion in fiscal 2022 and $1.6 billion in fiscal 2021. Such moves indicate the company’s commitment to returning value to shareholders and underline its confidence in business. We anticipate steady income growth, which will lead to constant cash flow generation, enabling it to pay out dividends.
ADP's current ratio (a measure of liquidity) at the end of fourth-quarter fiscal 2024 was pegged at 1.01, higher than 0.99 at the end of the year-ago quarter. A current ratio of more than 1 often indicates that the company is efficient enough to pay off its short-term obligations.
Meanwhile, the company has been witnessing a notable rise in its expenditure due to ongoing acquisitions and investments in its transformation projects. In fiscal 2023, ADP incurred $13.8 billion as total expenses, indicating 8% year-over-year growth. In 2022, the company's total expenses reached $12.8 billion, marking a substantial 10% increase from the previous year. This expense trend has persisted over several years, with expenses increasing 2% in fiscal 2021, 3% in fiscal 2020, 3.7% in fiscal 2019 and a significant 7.7% in fiscal 2018. We expect that this ongoing increase in expenses to continue to exert pressure on ADP's bottom-line performance in the foreseeable future.
Zacks Rank & Stocks to Consider
Automatic Data Processing currently carries a Zacks Rank #3 (Hold).
Image: Bigstock
Acquisitions Aid Automatic Data Processing Amid Rising Expenses
Automatic Data Processing, Inc. (ADP - Free Report) has had an impressive run over the year-to-date period. The stock has gained 19.3% compared with the 14.4% rally of the industry it belongs to and the 19% rise of the Zacks S&P 500 composite in the said period.
YTD Price Perfomance
ADP has reported an impressive fourth-quarter fiscal 2024. Earnings per share of $2.1 beat the consensus estimate by 1% and increased 10.6% from the year-ago quarter. Total revenues of $4.8 billion surpassed the consensus estimate by a slight margin and grew 6.5% from the year-ago quarter.
How is ADP Doing?
Automatic Data Processing’s three-tier business strategy assists it in maintaining its market position and thriving as a human capital management (HCM) technology and service provider. It is focused on delivering a complete suite of cloud-based HCM and human resource outsourcing (HRO) solutions. ADP is expanding its international HCM and HRO businesses with established local, in-country software solutions and cloud-based multi-country solutions.
Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham are a few of the acquired companies that have strengthened ADP’s customer base and assisted it in expanding operations in the international markets. Automatic Data Processing continues to acquire companies that strategically fit its overall business mix and are easy to integrate over the long term. The recent acquisition of Honu HR, Inc. DBA Sora improved its strategy to streamline HR processes through automation, combining Sora's user-friendly platform with ADP's HCM solutions for enhanced efficiency and employee experiences.
Dividend-seeking investors will find these shares appealing. ADP paid out $1.9 billion in dividends in fiscal 2023, $1.7 billion in fiscal 2022 and $1.6 billion in fiscal 2021. Such moves indicate the company’s commitment to returning value to shareholders and underline its confidence in business. We anticipate steady income growth, which will lead to constant cash flow generation, enabling it to pay out dividends.
ADP's current ratio (a measure of liquidity) at the end of fourth-quarter fiscal 2024 was pegged at 1.01, higher than 0.99 at the end of the year-ago quarter. A current ratio of more than 1 often indicates that the company is efficient enough to pay off its short-term obligations.
Meanwhile, the company has been witnessing a notable rise in its expenditure due to ongoing acquisitions and investments in its transformation projects. In fiscal 2023, ADP incurred $13.8 billion as total expenses, indicating 8% year-over-year growth. In 2022, the company's total expenses reached $12.8 billion, marking a substantial 10% increase from the previous year. This expense trend has persisted over several years, with expenses increasing 2% in fiscal 2021, 3% in fiscal 2020, 3.7% in fiscal 2019 and a significant 7.7% in fiscal 2018. We expect that this ongoing increase in expenses to continue to exert pressure on ADP's bottom-line performance in the foreseeable future.
Zacks Rank & Stocks to Consider
Automatic Data Processing currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Business Services sector are AppLovin (APP - Free Report) and Barrett Business Services (BBSI - Free Report) .
AppLovin presently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
APP has a long-term earnings growth expectation of 20%. It delivered a trailing four-quarter earnings surprise of 21.1%, on average.
Barrett Business Services currently carries a Zacks Rank of 2. It has a long-term earnings growth expectation of 15%.
BBSI delivered a trailing four-quarter earnings surprise of 31.9%, on average.