Automatic Data Processing (ADP) Spotted As Roof Leaker Today

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Automatic Data Processing ( ADP) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Automatic Data Processing as such a stock due to the following factors:

  • ADP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $147.8 million.
  • ADP has traded 341,346 shares today.
  • ADP is trading at 2.44 times the normal volume for the stock at this time of day.
  • ADP crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on ADP:

Automatic Data Processing, Inc., together with its subsidiaries, provides technology-based outsourcing solutions to employers and vehicle retailers and manufacturers worldwide. The stock currently has a dividend yield of 2.6%. ADP has a PE ratio of 25.9. Currently there are 5 analysts that rate Automatic Data Processing a buy, 2 analysts rate it a sell, and 13 rate it a hold.

The average volume for Automatic Data Processing has been 1.9 million shares per day over the past 30 days. Automatic Data Processing has a market cap of $35.7 billion and is part of the technology sector and computer software & services industry. Shares are down 7.2% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Automatic Data Processing as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, growth in earnings per share, increase in net income and solid stock price performance. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 18.4%. Since the same quarter one year prior, revenues slightly increased by 7.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has significantly increased by 224.88% to $81.30 million when compared to the same quarter last year. In addition, AUTOMATIC DATA PROCESSING has also vastly surpassed the industry average cash flow growth rate of 24.56%.
  • AUTOMATIC DATA PROCESSING has improved earnings per share by 9.7% 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 ($3.17 versus $2.80).
  • The net income growth from the same quarter one year ago has exceeded that of the IT Services industry average, but is less than that of the S&P 500. The net income increased by 7.6% when compared to the same quarter one year prior, going from $305.30 million to $328.60 million.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 29.98% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.
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