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

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ADP (ADP - Free Report) stock has showcased an impressive run in the past year. Shares of the company have gained 23.8%, outperforming the 11% rally of the industry and the Zacks S&P 500 composite’s 12.5% growth.

ADP’s revenues are anticipated to increase 6.3% and 5.8% year over year in fiscal 2025 and 2026, respectively. Earnings are likely to rise 8.2% in fiscal 2025 and 9% in fiscal 2026.

Factors That Auger Well for ADP’s Success

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

The company strengthens its customer base and is expanding global operations on the back of strategic buyouts, including that of WorkMarket, Global Cash Card and The Marcus Buckingham Company. ADP continues to acquire companies that fit its overall business mix and are easy to integrate over the long term. The 2023 Honu HR, Inc. DBA Sora (Sora) buyout improved its strategy to streamline HR processes via automation, incorporating Sora's user-friendly platform with ADP's HCM solutions for enhanced efficiency and employee experiences.

In fiscal 2021, 2022, 2023 and 2024, ADP paid out $1.6 billion, $1.7 billion, $1.9 billion and $2.2 billion in dividends, respectively. Such actions hint at the company’s commitment to return value to shareholders and underline its confidence in business. We anticipate steady income growth for the company, which will translate to a steady cash flow, enabling ADP to pay out stable dividends.
ADP's current ratio (a measure of liquidity) at the end of second-quarter fiscal 2025 was at 1, lower than the industry's 1.05. However, a current ratio of more than 1 often indicates that the company will easily pay off its short-term obligations.

Risks Faced by ADP

The outsourcing industry is labor-intensive and dependent on foreign talent. A surge in talent costs due to competition could deteriorate the industry’s growth. ADP, being one of the companies in the industry, is expected to get affected as well.

Acquisitions and investments made for transformation projects result in an uptick in the company’s expenses. In fiscal 2024, it increased 6.2%. The same is expected to rise 5.2% year over year in fiscal 2025. Despite a slower expense growth rate, a rise in this metric might put the bottom line under pressure.

Automatic Data Processing, Inc. Total Expenses (TTM)

 

ADP’s Zacks Rank & Stocks to Consider

The company has a Zacks Rank #3 (Hold) at present.

Some better-ranked stocks from the broader Zacks Computer and Technology sector are Affirm Holdings, Inc. (AFRM - Free Report) and ATN International, Inc. (ATNI - Free Report) , each flaunting a Zacks Rank of 1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Affirm Holdings has a long-term earnings growth expectation of 36.2%. AFRM delivered a trailing four-quarter earnings surprise of 84.1%, on average.

ATN International has a long-term earnings growth expectation of 10%. ATNI delivered a trailing four-quarter earnings surprise of 30.4%, on average.


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