Inside A-Rated Automatic Data Processing (ADP)

Editor's Note: Automatic Data Processing is a Trifecta Stocks holding. If you own, or are thinking of owning ADP, you HAVE to sign up for the FREE webinar hosted by TheStreet's fundamental expert Bryan Ashenberg and technical expert Bob Lang. Sign up now!

NEW YORK (TheStreet) -- Automatic Data Processing (ADP), an HR-related software and services company, has grown steadily as the economy improves, job growth continues and interest rates rise. In the year to date, ADP shares have risen 23.26% in value. Trifecta Stocks' Bryan Ashenberg and Bob Lang agree this is a company "not resting on its laurels".

ADP recently hosted an 'Innovation Day', where it released a number of technological solutions to human capital problems, including payroll, administration and compliance issues. Innovations included a tablet app for its Mobile Solutions program which allows pay, hours and benefits to be tracked, a revamped version of ADP's Document Cloud and improved analytics software.

The key to ADP's growth, says Ashenberg and Lang, is how it leverages its software-as-a-service (SaaS) offerings across its existing client base through upselling and cross-selling.

"As more investors become aware of this significant revenue (estimated at over $1 billion in sales with over 40,000 clients), we believe the stock will realize some value," they explain.

The company is slated to report first-quarter earnings for the period ended September 30 on October 30.

TheStreet Ratings team rates Automatic Data Processing as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate Automatic Data Processing (ADP) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had subpar growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 15.3%. Since the same quarter one year prior, revenues slightly increased by 7.1%. 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.
  • Net operating cash flow has increased to $575.5 million or 15.3% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -22.55%.
  • ADP's debt-to-equity ratio is very low at 0.04 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 0.13 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • 42.63% is the gross profit margin for Automatic Data Processing which we consider to be strong. Regardless of ADP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 8.07% trails the industry average.
  • Automatic Data Processing's earnings per share declined by 9.6% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. We anticipate these figures will begin to experience more growth in the coming year. During the past fiscal year, Automatic Data Processing's EPS of $2.80 remained unchanged from the prior years' EPS of $2.80. This year, the market expects an improvement in earnings ($3.15 vs. $2.80).

Remember:  Automatic Data Processing is a Trifecta Stocks holding.  If you own, or are thinking of owning ADP, you HAVE to sign up for the FREE webinar hosted by TheStreet's fundamental expert Bryan Ashenberg and technical expert Bob Lang.  Sign up now!

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

More from Markets

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Jim Cramer: The 10-Year Yield Could Go to 2.75%

Jim Cramer: The 10-Year Yield Could Go to 2.75%

Oil Slumps, Gas Spikes Ahead of Holiday Weekend; Assessing the Chipmakers--ICYMI

Oil Slumps, Gas Spikes Ahead of Holiday Weekend; Assessing the Chipmakers--ICYMI

Week Ahead: Wall Street Looks to Jobs Report as North Korea Meeting Less Certain

Week Ahead: Wall Street Looks to Jobs Report as North Korea Meeting Less Certain

Dow and S&P 500 Decline, Energy Shares Fall as U.S. Crude Oil Slides 4%

Dow and S&P 500 Decline, Energy Shares Fall as U.S. Crude Oil Slides 4%