Automatic Data Processing Stock Buy Recommendation Reiterated (ADP)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Automatic Data Processing (Nasdaq: ADP) has been reiterated by TheStreet Ratings as a buy with a ratings score of A . The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

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Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 9.7%. Since the same quarter one year prior, revenues slightly increased by 6.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the IT Services industry average. The net income increased by 4.2% when compared to the same quarter one year prior, going from $375.00 million to $390.80 million.
  • Net operating cash flow has slightly increased to $448.50 million or 3.91% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -30.61%.
  • ADP's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.12 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.

Automatic Data Processing, Inc. and its subsidiaries provide business outsourcing solutions. The company operates in three segments: Employer Services, Professional Employer Organization (PEO) Services, and Dealer Services. Automatic Data Processing has a market cap of $29.23 billion and is part of the technology sector and computer software & services industry. The company has a P/E ratio of 21.6, above the S&P 500 P/E ratio of 17.7. Shares are up 5.9% year to date as of the close of trading on Friday.

You can view the full Automatic Data Processing Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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