Critical Review: Automatic Data Processing (ADP) & The Competition

Automatic Data Processing (NASDAQ: ADP) is one of 186 public companies in the “IT Services & Consulting” industry, but how does it contrast to its peers? We will compare Automatic Data Processing to related businesses based on the strength of its earnings, dividends, institutional ownership, valuation, risk, profitability and analyst recommendations.

Institutional and Insider Ownership

78.6% of Automatic Data Processing shares are owned by institutional investors. Comparatively, 61.8% of shares of all “IT Services & Consulting” companies are owned by institutional investors. 0.3% of Automatic Data Processing shares are owned by insiders. Comparatively, 16.9% of shares of all “IT Services & Consulting” companies are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Dividends

Automatic Data Processing pays an annual dividend of $2.28 per share and has a dividend yield of 2.0%. Automatic Data Processing pays out 58.0% of its earnings in the form of a dividend. As a group, “IT Services & Consulting” companies pay a dividend yield of 1.6% and pay out 38.9% of their earnings in the form of a dividend.

Risk and Volatility

Automatic Data Processing has a beta of 0.85, meaning that its share price is 15% less volatile than the S&P 500. Comparatively, Automatic Data Processing’s peers have a beta of 1.15, meaning that their average share price is 15% more volatile than the S&P 500.

Analyst Ratings

This is a summary of current ratings for Automatic Data Processing and its peers, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Automatic Data Processing 0 12 3 0 2.20
Automatic Data Processing Competitors 731 4680 7450 169 2.54

Automatic Data Processing currently has a consensus target price of $111.15, indicating a potential downside of 2.28%. As a group, “IT Services & Consulting” companies have a potential upside of 3.27%. Given Automatic Data Processing’s peers stronger consensus rating and higher probable upside, analysts clearly believe Automatic Data Processing has less favorable growth aspects than its peers.

Profitability

This table compares Automatic Data Processing and its peers’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Automatic Data Processing 14.08% 42.34% 4.28%
Automatic Data Processing Competitors -20.48% -271.11% -4.68%

Earnings & Valuation

This table compares Automatic Data Processing and its peers top-line revenue, earnings per share and valuation.

Gross Revenue Net Income Price/Earnings Ratio
Automatic Data Processing $12.38 billion $1.73 billion 28.94
Automatic Data Processing Competitors $2.81 billion $293.37 million 348.60

Automatic Data Processing has higher revenue and earnings than its peers. Automatic Data Processing is trading at a lower price-to-earnings ratio than its peers, indicating that it is currently more affordable than other companies in its industry.

Summary

Automatic Data Processing peers beat Automatic Data Processing on 8 of the 15 factors compared.

About Automatic Data Processing

Automatic Data Processing, Inc. (ADP) is a provider of human capital management (HCM) solutions to employers, offering solutions to businesses of various sizes. The Company also provides business process outsourcing solutions. Its segments include Employer Services and Professional Employer Organization (PEO) Services. The Employer Services segment offers a range of human resources (HR) business process outsourcing and technology-enabled HCM solutions. These offerings include payroll services, benefits administration, talent management, HR management, time and attendance management, insurance services, retirement services, and tax and compliance services. ADP TotalSource, ADP’s PEO business, offers small and mid-sized businesses a HR outsourcing solution through a co-employment model. As a PEO, ADP TotalSource provides HR management services while the client continues to direct the day-to-day job-related duties of the employees.

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