Shares of Automatic Data Processing, Inc. ADP have had a decent run over the past month. The stock has gained 9.5% against the 6.5% decline of the industry. The Zacks S&P 500 composite has gained 3.7% during the said time frame.
The company’s fourth-quarter fiscal 2026 earnings are expected to increase 14.6% year over year. Its 2026 and 2027 earnings are projected to rise 10.6% and 9.3%, respectively. Revenues are anticipated to grow 6.6% in 2026 and 5.5% in 2027.
Factors That Bode Well for ADP
Automatic Data Processing benefits from its three-tier business strategy, enabling it to sustain and strengthen its position as a leading Human Capital Management (HCM) technology and services provider. The company delivers a complete suite of cloud-based HCM and Human Resource Outsourcing (HRO) solutions. ADP is expanding its international HCM and HRO businesses with established local, in-country software and cloud-based multi-country solutions to broaden its presence across diverse markets.
Automatic Data Processing, Inc. Revenue (TTM)
Automatic Data Processing, Inc. revenue-ttm | Automatic Data Processing, Inc. Quote
The company also pursues buyouts as a driver for its overall growth. Acquisitions such as Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company have enhanced ADP’s global capabilities, diversified its offerings and strengthened its competitive positioning. The recent acquisition of WorkForce Software has improved the company’s HCM solutions suite.
ADP continues to reward shareholders through consistent dividend payments and share repurchases. In fiscal 2025, 2024, 2023 and 2022, the company paid out $2.4 billion, $2.2 billion, $1.9 billion and $1.7 billion in dividends, respectively. Such moves indicate the company’s commitment to returning value to shareholders and underscore its confidence in its business.
ADP's current ratio (a measure of liquidity) at the end of the third-quarter fiscal 2026 was 1.04, lower than the industry average of 1.93. However, a current ratio of more than 1 often indicates that the company will be able to easily pay off its short-term obligations.
Risks to Watch
ADP faces significant competition in each of its product lines. Both its Employer Services and Professional Employer Organization Services segments compete with other independent business outsourcing companies in most of their operating regions. The company has observed a few negative impacts on its retention rate due to the rising competition and migration from the legacy business.
The outsourcing industry is labor-intensive and heavily dependent on foreign talent. Surging talent costs amid intensifying competition could limit the company’s ability to continue investing in technology and talent while balancing growth initiatives with profitability.
ADP’s Zacks Rank & Stocks to Consider
Automatic Data Processing currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks from the broader Zacks Computer and Technology sector are Cisco Systems CSCO and Dell Technologies DELL.
Cisco Systems carries a Zacks Rank of 2 (Buy) at present. It has a long-term (next five years) earnings growth expectation of 9.6%.
CSCO delivered a trailing four-quarter earnings surprise of 2%, on average.
Dell Technologies has a Zacks Rank of 2 at present. It has a long-term earnings growth expectation of 22.3%.
DELL beat the Zacks Consensus Estimate in three of the last four reported quarters and missed once, with an average earnings surprise of 1.2%.
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This article originally published on Zacks Investment Research (zacks.com).