Should You Buy It? ADP

Automatic Data Processing (ADP - commentary - Cramer's Take) is probably better known for its monthly job survey these days than its core payroll management business, but the stock has held up relatively well in 2008.

While the major market averages are down about 40% year-to-date, at Wednesday's closing price of $37.59, the stock is down just 15% -- about half the amount that similar companies like Paychex (PAYX - commentary - Cramer's Take) and Intuit (INTU - commentary - Cramer's Take) have fallen in 2008. Does ADP offer value at current levels, or are the shares destined to trade down in line with the rest of the market?

The company posted better-than-expected fiscal first-quarter (ended September) results on Nov. 3, earning 50 cents a share -- 4 cents ahead of the consensus estimate. Revenue grew 9.5% to $2.18 billion, which was $40 million higher than expected.

Despite the blowout numbers, management cut its fiscal 2009 (ending June) sales growth guidance to 2%-3% from 7%-8%. And while the company is still targeting 10%-14% earnings growth this year because of cost-cutting efforts, ADP is facing some headwinds as it enters the new year.

The company's growth is dependent on new business activity at a time when many folks believe that the unemployment rate could reach the double digits. Businesses are pulling back spending in general and may be reluctant to use some of ADP's auxiliary employer services such as human resources and benefits administration.

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David Peltier is a research associate at TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier appreciates your feedback; click here to send him an email.

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