Tags: Automatic | Data | Processing | ADP

ADP Cost Edge Offers Potential Advantage

By    |   Wednesday, 09 May 2012 10:46 AM

Automatic Data Processing (ADP), a leader in outsourced payroll, human resources (HR) and benefits, is in a steady growth business so long as employers seek cost advantage from their outsourced model. Employment problems around the globe create obstacles for companies such as ADP but also a potential cost edge as employers seek to reduce overhead.

ADP is a large provider of business outsourcing solutions for human resource, payroll, tax and benefits administration, in addition to integrated computing solutions for auto, truck, motorcycle, marine, recreational vehicle, and heavy equipment dealers throughout the world.

ADP’s reportable segments are: employer services, professional employer organization (PEO) services, and dealer services. Employer services has clients in the United States, Canada, Europe, South America (primarily Brazil), Australia and Asia, with approximately 537,000 employers serving 628,000 payrolls.

In fiscal 2011, 80 percent of employer services’ revenues were from the United States.

PEO services in the United States, meanwhile, had approximately 6,100 clients through 54 offices located in 23 states serving approximately 241,000 worksite employees in all 50 states.

Dealer services, meanwhile, served approximately 25,000 auto, truck, motorcycle, marine, RV and heavy equipment retailers in nearly 100 countries. Customers use ADP solutions to manage core business activities such as accounting, inventory management, factory communications, appointment scheduling, vehicle financing and insurance, sales and service.

ADP provides its services to about 570,000 clients. In fiscal 2011, no single client or group of affiliated clients accounted for revenues in excess of 2 percent of annual consolidated revenues, the company recently told investors.

“Our business is typically characterized by long-term client relationships that result in recurring revenue,” management said. “ADP is continuously in the process of performing implementation services for new clients.” ADP employed approximately 51,000 as of June 30, 2011.

ADP has a market cap of $26.26 billion in a sector, information technology services, where the average company size is $9.91 billion. Its trailing 12-month P/E ratio is 19.38 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.95, compared to 1.09 for the sector.

Its projected earnings per share growth for the coming year is 9.85 percent, lower than the sector average at 12.54 percent.

Major headwinds

Wall Street is broadly positive on the stock, with buy or outperform calls from Raymond James, Credit Suisse, UBS and Standard & Poor’s.

“Our buy opinion on the shares is based on valuation. Despite the major headwinds of continued high levels of unemployment and low prevailing interest rates, we believe conditions are improving,” S&P analysts wrote on May 4.

ADP next reports early August.

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