Payroll And Human Resource Management Week In Review: Paychex And ADP
The overall employment scenario in the U.S., as depicted by the employment data released by the Bureau of Labor Statistics (BLS) for the month of September 2014 seems to be back on track after a disappointing August performance. However, reports issued by Automatic Data Processing (NASDAQ:ADP) and Paychex (NASDAQ: PAYX), pertaining to job additions by small businesses, offer contradictory results, which suggests that some uncertainty in small business hiring still persists.
Paychex and ADP’s reports present opposing views
As per ADP’s Small Business Report, 88,000 jobs were added by small businesses (less than 50 employees) in the month of September 2014. [1] This was a slight uptick from the 82,000 job additions reported in August 2014 but a significant decline from the 109,000 jobs added in September 2013.
The Paychex IHS Small Business Jobs Index reported an increase of 0.13% year-on-year in the month of September 2014, [2] contradicting the year-on-year decline suggested by ADP’s report. The Small Business Jobs Index also reported the fourth consecutive sequential decline, suggesting a slowdown in job additions by small businesses in the U.S., and again a contradiction to ADP’s report. Because of the opposing views presented by these two reports, it is difficult to predict future trends in hiring by small businesses.
However, the stronger than anticipated September employment report issued by the BLS does instill a positive outlook overall. The unemployment ratio declined to 5.9%, lowest in the past 6 years, with 248,000 job additions, which exceeded economists expectations of 215,000 additions. [3] The job additions for the month of August, earlier reported to be 142,000, were also revised to 180,000, a far more comfortable level considering that the twelve month average stood at 214,000 at the end of July.
Paychex’s stock declined 1.57% over the week through Thursday, to reach $43.31. On average, the stock traded on a volume 1.91 million shares. The stock has traded at a 52-week high of $45.95 and low of $39.21.
We currently have a price estimate of $41 for Paychex, approximately 5% lower than its current market price. We estimate revenues of $2.7 billion and EPS of $1.87 for this fiscal year, in line with consensus estimates.
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ADP revises guidance in anticipation of CDK Global spin-off
On September 29, 2014, ADP revised its diluted earnings per share from continuing operations earnings per share guidance, forecasting 12-14% growth for its fiscal year 2015 over last fiscal year’s restated earnings per share of $2.58. [4] The revision comes in anticipation of the spin-off of its Dealer Services segment, now known as CDK Global, whose results will now be reported as discontinued operations.
On September 30, 2014, ADP unveiled a new user interface for its products, which will help make various Human Resource functions simpler and personalized. [5] Some of its benefits include an interactive interface that offers greater insight to benefits, taxes and other items that impact take-home pay, a cost benefit analysis of selecting benefit plans, time and attendance features, and mobile functionality. The new use interface, or new ADP experience (as termed by the company), will be available to majority of the North American users of ADP’s payroll solutions by the end of this year. It will be offered in other products such as benefits administration, time and attendance, and talent management product suites, in 2015.
On October 1, 2014, ADP announced that it had completed the spin-off of CDK Global, formerly its Dealer Services segment, to its shareholders. [6] ADP’s stock price declined 14% by the end of the day.
On October 2, 2014, ADP released a new product, ADP Health Compliance, which will help companies deal with the complexities associated with the Affordable Care Act (ACA). [7] ADP Health Compliance offers the convenience of Software as a Service (SaaS) with support provided by ACA experts that will help ensure compliance to the regulatory requirements.
ADP’s stock declined 12.21% over the week through Thursday, to reach $72.5. On average, the stock traded on a volume 1.38million shares. The stock has traded at a 52-week high of $84.68 and low of $69.91.
We currently have a price estimate of $74.3 for ADP, approximately 2.5% higher than its current market price. We estimate revenues of $13.17 billion and EPS of $3.49 for this fiscal year, in line with consensus estimates.
Click here to see our complete analysis of ADP
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Notes:
- ADP Small Business Report September 2014, October 1, 2014, www.adpemploymentreport.com [↩]
- Paychex | IHS Small Business Jobs Index, September 30, 2014, www.paychex.com [↩]
- Employment Situation Summary, October 3, 2014, www.bls.gov [↩]
- ADP Provides Updated Fiscal 2015 Guidance in Anticipation of Spin-Off, September 29, 2014, www.adp.com [↩]
- ADP Changes How Employees Work, Begins Roll-Out of Reimagined User Experience, September 30, 2014, www.adp.com [↩]
- ADP Completes Spinoff of CDK Global, October 1, 2014, www.adp.com [↩]
- ADP Health Compliance Solution Helps Employers Navigate Complex Health Care Reform Requirements in the United States, October 2, 2014, www.adp.com [↩]