ADP Beats Q1 Expectations; Shares Hit All-Time High

Shares of Automatic Data Processing, Inc. (ADP) hit a new all-time high of $224.76 after the company reported stellar first-quarter results. The results were aided by growing demand for all offerings and reflect ADP’s strength in attracting more and more businesses to deploy its human resource management solutions. Shares closed at $221.95 on October 27.

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ADP provides cloud-based human capital management (HCM) solutions. With a market cap of $92.49 billion, shares have gained 43.1% over the past year. (See Insiders’ Hot Stocks on TipRanks)

ADP’s Q1 adjusted earnings rose 17% year-over-year to $1.65 per share and meaningfully exceeded analyst estimates of $1.49 per share.

Further, revenue climbed 10% compared to the prior-year quarter to $3.83 billion and marginally beat the consensus estimate of $3.75 per share.

Commenting on the performance, Don McGuire, CFO of ADP, said, “Our updated guidance reflects stronger revenue growth through the rest of the year compared to our prior outlook, combined with steady profitability, as we continue investment in sales, technology, and implementation in support of sustainable long-term growth.”

Based on the strong start to the fiscal year and the strength in new bookings, revenue retention, pays per control, and worksite employee growth, ADP increased its full-year Fiscal 2022 guidance.

For FY22, ADP now expects revenue growth of 7% – 8% and adjusted earnings growth of 11% – 13%. Employer Services segment revenue is expected to grow by 5% – 6%, and Professional Employer Organization (PEO) Services segment revenue is forecast to grow by 11% – 13%.

Impressed with ADP’s solid Q1 results, Mizuho Securities analyst Dan Dolev said, “F1Q delivered improved fundamentals across the board, marked by an accelerating 2-year organic growth stack in the ES segment, “better-than-expected” ES new business bookings growth, and higher guidance across nearly every metric. We expect the bears may finally capitulate as ADP structurally improves.”

Dolev has a Buy Rating on ADP and a price target of $230, implying 3.6% upside potential to current levels. The analyst also states that ADP is currently trading at a discount to its peers and believes that improved Enterprise execution and an overall economic rebound will merit multiple expansions going forward.

Overall, the stock has a Hold consensus rating based on 2 Buys, 6 Holds, and 1 Sell. The average Automatic Data Processing price target of $223.56 implies that the shares are almost fully valued at current levels.

Additionally, according to TipRanks’ Smart Score system, ADP gets an 8 out of 10, which indicates that the stock is likely to outperform market averages.