Automatic Data Processing is a comprehensive global provider of cloud-based human capital management solutions. The company provides a host of services ranging from recruitment to talent management to retirement that help customers improve their business results. It is also a leader in providing business outsourcing services, analytics, and compliance expertise.
Automatic Data Processing’s business can be categorized into two reportable segments – Employer Services (70% of 2019 revenue) and Professional Employer Organization Services (30%). By geography, the U.S. is its largest market accounting for nearly 85% of revenues followed by Europe (9%), Canada (2%) and others (4%). The company serves a large base of 810,000 clients ranging from small and mid-sized to large organizations operating in 140 countries. It caters to the needs of more than 70% of the Fortune 500 companies. Automatic Data Processing is responsible for making payments to approximately 1 out of every 6 U.S. workers, and nearly 15 million workers internationally.
- Opportunity Score: 78
- Ticker: NASDAQ:ADP
- Sector: Industrials
- Industry: Staffing & Employment Services
- Market Cap: 58.08B
- P/E: 23.76
- Dividend Yield: 2.69%
- Payout Ratio (Earnings): 63.97%
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: /10
- Dividend Income Fit: /10
Revenue Growth & Market Exposure
Automatic Data Processing is the world’s largest and most experienced HR service company providing services ranging from basic payroll and record-keeping to complex tools for talent management and compensation. Some of its leading products include HCM solutions (cloud-based software and offer comprehensive solutions for employers), HRO solutions (management solutions for HR administration, payroll administration, talent management, etc.), and Global solutions (cloud-based multi-country solutions). These offerings can be customized to meet the complex and evolving needs of clients and employees. Clients trust the ADP brand for its product and technology innovation, industry-leading service, and compliance expertise. As a result, the company enjoys sticky customer relationships given increasing reporting complexity and compliance requirements.
With nearly seven decades of experience, Automatic Data Processing has developed deep insights and cutting-edge technology that have positively transformed human resources functionalities. The company serves over 640,000 small businesses, 70,000 mid-sized and large businesses, and 500 large enterprise businesses around the world. Deep knowledge about clients’ businesses, data security capabilities, and technology are the company’s biggest strengths. ADP is in a good position to gain from the growing trends of s digital technology, globalization, and new business models.
ADP continues to invest in systems development and programming which include client migrations to new cloud-based platforms, purchases of new software and software licenses, as well as the development of new products and maintenance expenses. The company’s Q4 results were adversely impacted due to economic headwinds and global employment decline. It, however, made progress on its major product initiatives, including the rollout of NextGen HCM platform and Payroll engines.
Automatic Data is a Dividend Aristocrat having raised its dividend at a rate of more than 9% CAGR over the last decade. It has a payout ratio of 64% and a 2.6% healthy dividend yield. ADP last increased its dividends by 31%, representing the 45th year of consecutive dividend increases. The company also has a share buyback program in place.
Automatic Data Processing’s dividend is well-covered by its profits and cash flow. Its earnings per share have been growing at 17% a year over the past three years. ADP typically enters into long-term client relationships that result in recurring revenue. Most of its revenues are generated on a recurring basis. The company has maintained an impressive client retention record of ~11 years in Employer Services and ~6 years in the PEO segment.
A large and growing addressable market is a huge tailwind for ADP. The company’s world-class platforms and multi-national solutions provide clients with comprehensive HR and payroll capabilities driving productivity and growth. ADP is also accelerating the deployment of AI to gain a competitive edge over the competition.
Given the slow pace of employment recovery, the company expects global economic recovery over the coming quarters will be gradual. It anticipates negative bookings growth in the first half of FY2021 and slow growth in the latter part of the year, driving full-year bookings growth of flat to up 10%. ADP plans to continue investing in product innovation, digital sales capabilities, and leading-edge sales tools to drive sales productivity higher in FY 2021.
Automatic Data Processing competes directly with Robert Half International which is also engaged in providing staffing and employment services. Robert Half is a leading company providing professional staffing and consulting services globally. Paychex, Ultimate Software and Workday are ADP’s other competitors.
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|NASDAQ:ADP||ADP||Automatic Data Processing||Industrials||Staffing & Employment Services||0.78||135.09||58.08||23.76||23.76||5.69||0.0269||2.69||0.6397||4||3.64||0.1180||9||6||Tollbooth - Unregulated||NO||YES||YES||NO||USA||1|
|NYSE:RHI||RHI||Robert Half International Inc.||Industrials||Staffing & Employment Services||0.74||53.67||6.15||16.81||16.81||3.19||0.0253||2.53||0.4263||4||1.36||0.1249||9||6||Intermediate||NO||YES||NO||NO||USA||1|
Outsourced human resources services are gaining momentum as companies seek to simplify their businesses. ADP’s product offerings remain well-positioned to support sustainable long-term revenue growth. Though the dividend yield is not attractive, ADP’s long track record of dividend payments and hikes cannot be ignored. ADP has the potential to deliver both earnings and dividend growth for the foreseeable future.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.