NEW YORK (TheStreet) -- Shares of Automatic Data Processing (ADP) are up 1.6% to $77.10 after the provider of business outsourcing solutions said that its board of directors approved a plan to separate the Dealer Services business into an independent publicly traded company through a tax-free spin-off of 100% of Dealer Services to ADP shareholders.
Separately, Moody's (MCO) downgraded the company's Issuer Rating to Aa1 from Aaa.
As part of the rating action, Moody's assigned an Aa1 rating to a $5.25 million industrial revenue bond backed by ADP, and affirmed the company's P-1 Short-term Rating. Their rating outlook remains "stable."
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, growth in earnings per share, increase in stock price during the past year, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 20.4%. Since the same quarter one year prior, revenues slightly increased by 8.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- AUTOMATIC DATA PROCESSING has improved earnings per share by 8.3% 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 ($3.16 versus $2.80).
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- 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 0.10 is very weak and demonstrates a lack of ability to pay short-term obligations.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the IT Services industry and the overall market on the basis of return on equity, AUTOMATIC DATA PROCESSING has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full analysis from the report here: ADP Ratings Report