Bottom Line Up Front
Automatic Data Processing has achieved the following results in the last 10 years:
- Revenue (Mil): $8,500 to $11,747 – [38% Increase]
- Profit Margins: 12.42% to 12.05% – [2% Decrease]
- Cash Flow Per Share: $2.10 to $2.77 – [31% Increase]
- Book Value: $9.92 to $12.99 – [30% Increase]
- Outstanding Shares (Mil): 590 to 485 – [17% Decrease]
- Dividend: $.61 to $1.79 – [193% Increase]
- Shareholder Returns: $28.94/share returned to shareholders through dividends and share buybacks
ADP Stock Analysis
ADP was founded on an innovative idea to help business owners focus on core business activities by relieving them from certain administrative tasks such as payroll, taxes, etc. ADP is one of the world’s leading providers of services that streamlines and improves payroll and benefits management for employers of small, medium, or large businesses. It serves more than 620,000 clients in more than 125 countries.
There is a lot of competition in the payroll & benefits service industry. However, ADP has positioned themselves as the top provider by offering outstanding service to their clients and diversifying their income streams. As of fiscal year 2013 no one client of ADP accounts for more than 2% of its revenue. While nobody in business likes to lose a client this shows that no one client will make or break this company’s business model.
Growth – ADP has done a great job of expanding it’s business over the last 5 years. You can see the explosion of growth clearly, this can be attributed to the organic growth of their revenues coupled with record client revenue retention. ADP continually focuses on markets that offer significant growth opportunities, the chance to be the industry leader, and seeks out clients that have considerable service needs. Additionally ADP leverages their 60 years of experience to attract the best and brightest individuals who are committed to growing their business.
Outlook – In order to position itself as the market leader in human capital management ADP strives to break into new markets and offer its services to businesses in their current locations. There should be a word of caution surrounding ADP’s business. While they without a doubt stand above all other companies in their industry their business relies on economic stability and growth. New businesses and more employees result in more opportunities for ADP. A strong economic downturn could indeed negatively effect this mammoth. As I stated before, ADP has positioned its client portfolio to no one client making up more than 2% of their revenue streams so they have a strategic advantage if a downturn were to occur.
By The Numbers – At first glance ADP’s revenue over the last 10 years does not look impressive but if you take notice of 2010 you will see that it’s revenues exploded and have grown significantly since. I believe we will see continued revenue growth for this company. As I have always stated profit margins do not necessarily make or break a company. Of course anyone would like to see increasing profit margins but in this case we see profit margins for ADP steadily declining. This can be attributed to their highly competitive industry. Whenever a company grows and shows success in an industry new competitors sprout up because “the market’ for the product or service has been verified. And as always with new competition, lower prices typically occur, this is an example of capitalism at its finest.
Even though this is a highly competitive market ADP has increased their free cash flow per share and book value over the last 10 years. Remember not to let these terms scare you, a great point of reference for book value is net worth. This is essentially calculated by simply subtracting all your liabilities from your assets. Additionally their dividend payment has almost tripled, imagine tripling your income over a 10 year period. I would love that! Not to mention if you had purchased the stock 10 years ago you would have almost made your money back just through dividends and share buybacks. Everything else you receive is icing on the top.
Here’s to our Wealth!
Do you currently own ADP? What do you expect to see from Automatic Data Processing over the next 10 years?
This infographic is not a recommendation to purchase this stock but should be used as a reference for your own due diligence. I am not a registered financial advisor, anything you find on my site is for informational purposes only. Investors trade at their own risk.