Financial Comparison: Cognizant Technology Solutions (CTSH) and Automatic Data Processing (ADP)

Cognizant Technology Solutions (NASDAQ: CTSH) and Automatic Data Processing (NASDAQ:ADP) are both large-cap technology companies, but which is the better stock? We will compare the two businesses based on the strength of their earnings, analyst recommendations, dividends, valuation, risk, profitability and institutional ownership.

Insider and Institutional Ownership

86.9% of Cognizant Technology Solutions shares are held by institutional investors. Comparatively, 78.6% of Automatic Data Processing shares are held by institutional investors. 1.1% of Cognizant Technology Solutions shares are held by insiders. Comparatively, 0.3% of Automatic Data Processing shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company will outperform the market over the long term.

Volatility and Risk

Cognizant Technology Solutions has a beta of 1.11, meaning that its stock price is 11% more volatile than the S&P 500. Comparatively, Automatic Data Processing has a beta of 0.86, meaning that its stock price is 14% less volatile than the S&P 500.

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for Cognizant Technology Solutions and Automatic Data Processing, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Cognizant Technology Solutions 0 3 21 1 2.92
Automatic Data Processing 0 10 5 0 2.33

Cognizant Technology Solutions currently has a consensus price target of $84.42, indicating a potential upside of 8.07%. Automatic Data Processing has a consensus price target of $117.31, indicating a potential upside of 4.91%. Given Cognizant Technology Solutions’ stronger consensus rating and higher possible upside, equities analysts plainly believe Cognizant Technology Solutions is more favorable than Automatic Data Processing.

Valuation and Earnings

This table compares Cognizant Technology Solutions and Automatic Data Processing’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Cognizant Technology Solutions $14.81 billion 3.11 $1.50 billion $2.52 31.00
Automatic Data Processing $12.38 billion 4.00 $1.73 billion $3.86 28.97

Automatic Data Processing has lower revenue, but higher earnings than Cognizant Technology Solutions. Automatic Data Processing is trading at a lower price-to-earnings ratio than Cognizant Technology Solutions, indicating that it is currently the more affordable of the two stocks.

Dividends

Cognizant Technology Solutions pays an annual dividend of $0.60 per share and has a dividend yield of 0.8%. Automatic Data Processing pays an annual dividend of $2.52 per share and has a dividend yield of 2.3%. Cognizant Technology Solutions pays out 23.8% of its earnings in the form of a dividend. Automatic Data Processing pays out 65.3% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Profitability

This table compares Cognizant Technology Solutions and Automatic Data Processing’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Cognizant Technology Solutions 10.15% 19.94% 14.64%
Automatic Data Processing 13.47% 43.28% 4.29%

Summary

Cognizant Technology Solutions beats Automatic Data Processing on 11 of the 17 factors compared between the two stocks.

Cognizant Technology Solutions Company Profile

Cognizant Technology Solutions Corporation is a professional services company. The Company operates through four segments: Financial Services, Healthcare, Manufacturing/Retail/Logistics, and Other. The Financial Services segment includes customers providing banking/transaction processing, capital markets and insurance services. The Healthcare segment includes healthcare providers and payers, as well as life sciences customers, including pharmaceutical, biotech and medical device companies. The Manufacturing/Retail/Logistics segment includes manufacturers, retailers, travel and other hospitality customers, as well as customers providing logistics services. The Other segment includes its information, media and entertainment services, communications and high technology operating segments. Its services include consulting and technology services and outsourcing services. Its outsourcing services include application maintenance, IT infrastructure services and business process services.

Automatic Data Processing Company Profile

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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