Shares of Automatic Data Processing, Inc. (NASDAQ:ADP) have gained 28.2% in the past year, outperforming 15% rise of the industry it belongs to and 0.9% gain of the Zacks S&P 500 composite.
Recently, the company reported strong second-quarter fiscal 2019 results, with earnings and revenues beating the Zacks Consensus Estimate. Adjusted earnings per share of $1.34 beat the Zacks Consensus Estimate by 16 cents and improved year over year. Total revenues of $3.50 billion outpaced the consensus mark by $69.1 million and also improved year over year.
ADP has an impressive earnings surprise history, having outpaced estimates in each of the last four quarters. It delivered average four-quarter positive earnings surprise of 7.6%.
What’s Driving ADP?
Acquisitions: A Key Growth Strategy
ADP is strengthening its foothold in the global human capital management (HCM) market through strategic acquisitions like Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company. These buyouts will strengthen ADP’s customer base and help it expand operations in international markets. The company continues to pursue acquisitions that strategically fit its overall business mix and are easy to integrate over the long term.
Strong Business Model
The company has a strong business model, high recurring revenues, good margins, robust client retention and low capital expenditure. Moreover, it has a strong cash generating ability that allows it to pursue growth in areas that exhibit true potential. ADP has a strong pipeline for new business bookings. Also, it continues to innovate, improve operations and invest in the sales force.
Encouraging Balance Sheet
Effective management execution has helped ADP build cash and cash equivalents of $2.79 billion as of Dec 31, 2018. The company continues to use excess cash to aggressively buy back shares and pay dividends. In the first six months of fiscal 2019, the company paid dividends worth $605 million and repurchased shares worth $526.6 million.
We believe that this strong cash position will not only help ADP to continue with its shareholder-friendly activities but also pursue strategic acquisitions and investments on product development in the long run.
Zacks Rank & Other Stocks to Consider
ADP currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other top-ranked stocks in the broader Zacks Business Services sector are Insperity (NYSE:NSP) , Robert Half (NYSE:RHI) and Paychex (NASDAQ:PAYX) . While Insperity sports a Zacks Rank #1, Robert Half and Paychex carry a Zacks Rank #2.
Long-term expected EPS (three to five years) growth rate for Interpublic, Robert Half and Paychex is 18%, 8.4% and 8.8%, respectively.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
Insperity, Inc. (NSP): Free Stock Analysis Report
Robert Half International Inc. (RHI): Free Stock Analysis Report
Automatic Data Processing, Inc. (ADP): Free Stock Analysis Report
Paychex, Inc. (PAYX): Free Stock Analysis Report
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