Automatic Data Processing (NASDAQ:ADP), which competes with Paychex (NASDAQ:PAYX), reported a decline in its payroll revenues from large businesses for 2009 due to the economic environment in the US. We expect ADP’s payroll revenue declines to continue in 2010 for ADP.
Payroll Processing 83% of ADP’s stock
ADP is the largest payroll processing company around the globe and caters mainly to large businesses that employ more than 500 people on an average. ADP refers to such large customers as “national accounts”. ADP makes money by providing three important services: traditional payroll processing, tax filing and employee benefits management.
In 2009, more than 41% of the US payroll processing revenues came from large business or national accounts alone, making them vital to ADP during tough economic times. We estimate that the payroll processing business constitutes nearly 83% of the $52 Trefis price estimate for ADP’s stock.
ADP’s National Account Numbers to Remain Flat in 2010
We expect the growth rate in national accounts to be flat at 5,000 for 2010 as companies tend to reduce spending on non-vital investment like payroll processing during weak economic times. We, however, expect the economy to improve in the long run and expect National Payroll Accounts to reach nearly 5,600 by the end of Trefis forecast period.
You can modify our forecast below to see how ADP’s stock will be impacted if ADP secures more new client accounts than our estimate in 2010.
Average Employees per National Payroll Account to Reach 2,150
The unemployment rate still hovers around 10% or more in some parts of the US. We expect it will take more time for employment to bounce back to more typical rates.
Taking a cue from ADP’s recent earnings release, we have decreased our average number of employees forecast; however expect Average Employees per National Payroll Account to improve gradually over time and reach 2,150 by the end of Trefis forecast period.
You can modify our forecast below to see how ADP’s stock will be positively impacted if the Average Employees per National Payroll Account were to increase more than we forecast.
