Automatic Data Processing, Inc. (ADP) is set to report fourth quarter 2014 results on Oct 29. Last quarter, it posted a 0.0% surprise. The company has posted an average positive earnings surprise of 0.83% over the past four quarters.
Let’s see how things are shaping up for this announcement.
Growth Factors This Past Quarter
ADP is expected to perform better on the back of improved execution and higher client retention. Moreover, recovery in the job market will help the company. However, a volatile macroeconomic environment and increasing competition from Paychex Inc. (PAYX) and Equifax Inc. (EFX) are the near-term headwinds.
The launch of ADP marketplace will help employers to manage an ecosystem of complementary enterprise applications, enabling them to extend the value of their workforce data across their entire organizations. The new product improves ADP’s competitive position, in our view.
We believe that the spin-off of its dealer services segment renamed as CDK Global will enable both ADP to focus on their core operation. Further, the company is expected to fetch a tax-free sum of $825 million on account of the spin-off which it will use for making share repurchases. This, in turn, will boost the bottom line growth going forward.
Earnings Whispers?
Our proven model does not conclusively show that ADP will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 60 cents. Hence, the difference is of 0.00%.
Zacks Rank #4 (Sell): We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are a couple of other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
- Facebook Inc. (FB) has an Earnings ESP of +6.25% and a Zacks Rank # 2 (Buy)
- Invensense Inc. (INVN) has an Earnings ESP of +10.00% and a Zacks Rank # 2
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