Automatic Data Processing (ADP) Q3 Earnings: What's Up?

Automatic Data Processing Inc. (NASDAQ:ADP) is set to release third-quarter fiscal 2017 earnings on May 3. Notably, the company has beaten the Zacks Consensus Estimate in the three of the trailing four quarters, with an average positive surprise of 5.31%.

In the last quarter, ADP reported a positive earnings surprise of 7.41%. Adjusted earnings from continuing operations of $1.13 per share jumped 52.7% on a year-over-year basis. Moreover, revenues of almost $2.99 billion grew 6.4% on a year-over-year basis.

The impressive results helped the stock outperform the Zacks Outsourcing industry on a year-to-date basis. While the industry lost 6.1%, the stock gained 1.6%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

ADP holds a dominant position in the payroll processing and human capital management market (HCM), primarily owing to robust product portfolio. The company has a strong customer base with more than 650K clients across 110 countries.

Automatic Data Processing, Inc. Price and EPS Surprise

We believe that ADP’s higher revenue per client and a decent customer retention ratio places it in an advantageous position. Further, the company continues to win new clients. During the quarter, ADP products were selected by the likes of Simmons Foods, and Areas – an international brand of Elior Group. Moreover, anticipated recovery in business bookings growth in second-half fiscal 2017 will boost results.

However, increasing competition from the likes of Paychex (NASDAQ:PAYX), Equifax (NYSE:EFX) , Insperity, Inc. and TriNet Group is a significant headwind.

Earnings Whispers

Our proven model does not conclusively show that ADP is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: ADP’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.23 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: ADP carries a Zacks Rank #3, which when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

DragonWave (TO:DRWI) with an Earnings ESP of +8.82% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Impinj (NASDAQ:PI) with an Earnings ESP of +50% and a Zacks Rank #2.

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