2024-06-14 06:58:14 ET
Summary
- ADP shares have risen 13% in the past year but have significantly underperformed the market since October; I remain concerned about a potential decline.
- ADP's revenue growth is driven by interest income from client funds, making it a significant beneficiary of higher interest rates, a tailwind that will likely reserve.
- ADP's high earnings multiple is unjustified given its mid-single digit growth prospects, and I would sell shares.
Shares of Automatic Data Processing ( ADP ) have been a moderate performer over the past year, rising 13%, though shares have been unable to sustainably break above $250 since last August. I last covered ADP in October, and I rated shares a “strong sell,” given its premium valuation, reliance on interest income, and slowing employment growth. Since that recommendation, shares have significantly underperformed the market, rising just 13% while the S&P 500 is up 30%. Given the magnitude of underperformance, a negative rating was justified, though the rally in shares has defied my concerns about a potential decline. Interest rates staying higher for longer has played a role in that, and now is a good time to revisit ADP....
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Automatic Data Processing: Slowing 2025 Earnings Growth Makes Shares Unattractive