Automatic Data Processing (NASDAQ:ADP) is expected to publish its Q4 FY’23 earnings on July 26, reporting on a period that saw the U.S. job market remain reasonably strong. We expect ADP’s revenue for the quarter to come in at about $4.39 billion and roughly in line with the consensus estimates. We project that earnings will stand at about $1.85 per share, compared to a consensus estimate of $1.83. So, what are some of the trends that are likely to drive the company’s results? See our interactive dashboard analysis on ADP Earnings Preview for more details on how ADP revenues and earnings are likely to trend for the quarter.
ADP’s business has held up quite well in recent quarters as the labor market remained strong. For example, over the most recent quarter – Q3 FY’23 – earnings were stronger than expected, with revenues rising almost 9% to $4.9 billion and adjusted diluted EPS rising 14% to $2.52. Growth was driven by strong new business bookings, worksite employee growth, and higher revenue via client funds interest. These trends should hold up through Q4 FY’23 as well. For perspective, total nonfarm payroll employment rose by 209,000 in June, with the unemployment rate remaining roughly flat month over month at 3.6%. Growth is being driven by sectors including government, health care, social assistance, and construction. This should result in an expanding base of clients and continued strong demand for ADP’s services. ADP has also done a good job of managing its margins so far. Over Q3, the adjusted operating margin rose 120 basis points to 24.3%.
We remain neutral on ADP stock with a $239 price estimate, which is about 2% ahead of the market price. While ADP stock offers relatively stable and predictable earnings growth, its multiple is relatively high at 29x projected FY’23 earnings. See our analysis of ADP valuation for more details on what’s driving our price estimate for ADP stock.
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