Automatic Data Processing (ADP) is said to be the largest U.S.-based supplier of payroll processing, benefits management, tax reporting and related data processing services to mid-sized companies, notes Harry Domash, income specialist and editor of Dividend Detective.
ADP also offers Professional Employer Organization (PEO) services, which provides Human Resources (HR) services such as payroll tax filing, human resources guidance, retirement planning, health benefits administration, etc.
With 13 of the 19 analysts that are following it rating ADP at “hold,” which often really means “sell,” ADP is a contrarian play.
One reason for analysts’ sour outlook was that ADP, founded in 1949, had been slow to update its software to reflect current industry practices, hurting its competitive position. However, ADP has gone a long way towards resolving those issues, including making a couple of key acquisitions. It also recently acquired an international provider of payroll management services, considerably extending its global reach.
Thanks to those efforts, ADP has beat analyst earnings forecasts in each of its last four quarters. For instance, for its most recent quarter ending in September, earnings came in at $1.20 per share, $0.09 above forecasts, and up 28 percent over year-ago. ADP also raised nest year’s EPS and revenue guidance.
ADP, currently paying dividends equating to a 2.4 percent yield, has a strong dividend growth track record. It announced an 11 percent raise in December 2017, followed by a 10 percent hike in June 2018, and then a 14 percent raise in November. To put all of that into perspective, ADP’s $0.79 per share December dividend was 25 percent above its year-ago payout.
All else equal, positive EPS surprises combined with higher future guidance (beat & raise) typically pushes share prices up. Consequently, thanks to its recent track record of consistent EPS surprises, even after the market sell-off, ADP’s still returned 12 percent (including dividends) for 2018.
The good news is that analysts are only forecasting 7 percent EPS growth for 2019, leaving plenty of room for further upside surprises. The stock made shareholders happy in 2018 and could continue its winning ways this year.
