Automatic data processing increases with solid results
No matter how great the risks to the economy right now, the results Automatic data processing (NYSE: ADP) demonstrate that the labor market and companies in general are doing well. The company not only reported a stronger-than-expected quarter, but was also able to guide the next quarter higher. Stocks can be highly valued at 32 times their earnings, but that doesn’t seem to matter to the market. The price action after the launch is very bullish and points to at least a new test of historical highs if not a new all-time high. From our view of the labor market and the leverage that automatic data processing has gained on it, we see that this trend continues and increases the price of stocks, at least in the short term.
Automatic data processing, increases the guide
Automatic data processing had a large quarter driven by an increase in customers and employees per customer. The company posted net income of $ 4.5 billion, with a 10% gain over last year and about 12% in the 2-year stack. Revenue also outperformed Marketbeat.com by 100 basis points and is driven by earnings from the two major operating segments. Employer Services, the largest segment, grew 8% and a 13% increase in new business is expected during the year. The PEO segment grew 14% stronger and is supported by a 16% increase in on-site workers.
Turning to earnings, the company was able to leverage revenue growth and internal efficiencies to extend its adjusted EBIT margin by 50 basis points. This helped drive a 15% increase in net income and a 16% increase in adjusted EPA. All in all, the adjusted EPA $ 2.21 is $ 0.13 better than expected and the strength of the margin is expected to continue. In terms of targeting, the company raised the target for revenue growth from 9% to 10% compared to the Marketbeat.com consensus of 8.59% and there is a similar strength in the outlook. earnings.
Analysts may limit gains in automated data processing
The 12 analysts who value automatic data processing have linked it to a holding company with a target price that assumes that the shares have a reasonable valuation. Without any analytical comment since the earnings release and a declining consensus target, we see that stock gains are limiting. Price action may rise in the short term, but it will reach a ceiling that may coincide with the $ 250 high price target. The $ 250 target coincides with the current all-time high and a likely place to find resistance in such a valued stock. We do not see a significant sale in the future, but we believe that this value may be limited.
The technical perspective: automatic data processing confirms the trend
The price action in automatic data processing increased by almost 5% as a result of the publication of earnings and is confirming the trend. The bad news is that the trend is an uptrend within a range and there is a possibility that a new high will only translate into a sell signal. If the price action can exceed the current all-time high and maintain the level, it may continue to rise. If not, we expect these stocks to move sideways between $ 200 and $ 250 at least for the rest of the year.