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ADP's Q1 Earnings to Gain From Higher Bookings, PEO Revenues

Automatic Data Processing Inc ADP is set to release first-quarter fiscal 2018 earnings on Nov 2.

Notably, the company beat the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive surprise of 5.65%. Last quarter, ADP delivered a negative earnings surprise of 2.99%.

Adjusted earnings of 66 cents per share increased 4% on a year-over-year basis on revenues of $3.07 billion, which increased 5.7%.

Notably, the stock has returned 13.8% year to date, substantially outperforming the 6.7% rally of the industry.



Let’s see how things are shaping up for this announcement.

Key Factors to Watch For

ADP’s top-line growth is anticipated to be 5% in the quarter, which is in the lower end of its 5-6% growth forecast for fiscal 2018. We expect improving bookings to positively affect revenues along with strong growth in the Professional Employer Organization (PEO) Services segment.

The Zacks Consensus Estimate for revenues is currently pegged at $3.06 million. The consensus estimate for the PEO Services segment is $892 million.
 

However, elevated spending on service and sales along with the charges related to Service Alignment Initiative will keep margins under pressure in the soon-to-be-reported quarter.

Moreover, higher tax rate will also dent profitability.

Further, the ongoing proxy fight with Bill Ackman’s Pershing Square will remain an overhang on the stock.

Earnings Whispers

Our proven model does not conclusively show that ADP is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: ADP’s Earnings ESP is -0.35%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: ADP carries a Zacks Rank #3 (Hold), which when combined with a -0.35% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Kemet Corporation KEM has an Earnings ESP of +7.46% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Broadridge Financial Solutions Inc  BR has an Earnings ESP of +4.03% and carries a Zacks Rank #2 (Buy).

HubSpot Inc HUBS has an Earnings ESP of +26.53% and has a Zacks Rank #2.

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HubSpot, Inc. (HUBS): Free Stock Analysis Report
 
Kemet Corporation (KEM): Free Stock Analysis Report
 
Broadridge Financial Solutions, Inc. (BR): Free Stock Analysis Report
 
Automatic Data Processing, Inc. (ADP): Free Stock Analysis Report
 
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