Automatic Data Processing, Inc. Company Analysis
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Automatic Data Processing, Inc. Company Analysis
Abstract
Automatic Data Processing, Incorporated (ADP) is a successful technology company in a highly competitive industry. They are a provider of many business processes and cloud-based solutions, including: payroll, talent management, human resource management, benefits administration, outsourcing opportunities, and time and attendance for employers and auto dealers around the world. They have increased their total revenue and net income year and year. They have a worldwide retention rate of 91%. They dont have to carry their own inventory, due to a written agreement filed with the Securities and Exchange Commission in 2003 with Kronos. ADP owns 13 of its processing/print centers, and 24 other operational and sales offices, and its corporate headquarters in Roseland, New Jersey (ADP, Automatic Data Processing, Inc. 10K, 2012).
Background Summary
Automatic Data Processing (ADP) was founded in 1949 by Henry Taub, which was originally called Automatic Payrolls, Inc. (ADP, n.d). The company name was changed to what it is called today in 1958 (ADP, n.d). ADP became a public company in 1961 (ADP, n.d). ADP is a provider of business processing and cloud-based solutions, including payroll, talent management, human resource management, benefits administration, outsourcing opportunities, and time and attendance for employers and auto dealerships around the world (Rodriguez, 2014). ADP is the leading supplier of integrated computing solutions to auto, truck, recreational vehicles (RV), motorcycle, Marine, and heavy equipment retailers and manufactures (ADP, Automatic Data Processing, Inc. 10K, 2012). They have 60,000 employees worldwide (Rodriguez, 2014). One in six workers in the United States is paid by ADP (Rodriguez, 2014). They serve about 620,000 businesses in more than 125 countries (Rodriguez, 2014). At least ninety FORTUNE 100 companies and over 80% of FORTUNE 500 companies use at least one ADP service (Rodriguez, 2014).
Latest Trends in Stock Prices and Income Statements
Their stock has split with a 2:1 ratio six times from 1976 through 1999 (Morningstar, 2014). Their quarterly stock dividends have consistently increased throughout the years. The dividends in 2009 were $0.33 per share totaling $1.33 yearly payout per share, and are now at $0.48 per share as of December 11, 2013, totaling $1.78 yearly payout per share (Morningstar, 2014). In 2014 the expected quarterly dividends payout will be $0.48 per share (Morningstar, 2014). In March 2009 their stock was selling at $33.06 per share and now has closed on February 28, 2014 at $77.78 per share (Nasdaq, 2014). Their fifty-two week low stock price was $60.69 and their one year target is $80.06 (Nasdaq, 2014). See exhibit A for the past one year stock history (YahooFinance, One Year ADP Stock Line Chart, 2014). Market capital is at $37.48 billion, average volume is 1.89 million, price-earnings ratio is 26.46, earning per share is 2.94, dividend yield 2.47%, and the next expected dividend date will be March 12, 2014 (Nasdaq, 2014). ADPs stock sells at the NASDAQ exchange. Their capital structure was at its highest since 2009 on September 30, 2013 at 0.4023 (YCharts, 2014). Their average equity to debt ratio from 2009 through 2013 was 0.03466. Their credit rating is the highest it can achieve at AAA (ADP, Awards and Recongition, 2014). They are only three other non-financial companies which have achieved an AAA credit rating (ADP, Awards and Recongition, 2014).
According to ADPs 2010 through 2013 income statements, the company has been steadily increasing their revenue. In 2010 ADPs new earnings was 1,207.3 million, 1,254.2 in 2011, 1,388.5 in 2012, and 1,405.8 million in 2013 (ADP, Automatic Data Processing, Inc. 10K, 2012) (ADP, Automatic Data Processing Income Statement, 2013). Their expenses have also been steadily increasing, but not enough to cause net earnings to decrease (ADP, Automatic Data Processing, Inc. 10K, 2012). This has been easier to accomplish with their 91% worldwide customer retention (ADP, Automatic Data Processing, Inc. 10K, 2012).
For the past five years the company has reduced its common stock by approximately 10%, by implementing company stock buy-backs (ADP, Automatic Data Processing, Inc. 10K, 2012). They have also increased their common stock dividends for a consecutive 37 years (ADP, Automatic Data Processing, Inc. 10K, 2012). Their yearend target is $80.06 per share (Nasdaq, 2014).
Cash Flow Analysis
After analyzing their cash flow and income statements I noticed that ADPs cash flow is magnificent with the operating cash flow/net sales ratio was 136% in 2010, 111% in 2011 and 2012, and 121% in 2013. Their cash flow each year is significantly higher that their net sales, resulting in the high percentage. In 2013 they seem to have invested a larger amount in their fixed assets, compared to 2012. In 2012 it seems ADP spent less in investing activities, but spent much more in financing activities, resulting in a deficit compared to all years from 2010 through 2013 (Google, 2014). Compared to the past 4 years, the cash from operating activities was actually lowest in the year ending June 30, 2013, but shows a pretty steady activity throughout the years in exhibit B (Google, 2014). 2012 was the only year ADP had a net decrease in client funds obligations under the financing activities (ADP, Automatic Data Processing, Inc. 10K, 2012). They show a significant increase in proceeds from sales and maturities of corporate and client fund marketable securities (ADP, Automatic Data Processing, Inc. 10K, 2012). They also showed a net increase in restricted cash and cash equivalents and other restricted assets held to satisfy client funds obligations, when the previous two years were significant net decreases (ADP, Automatic Data Processing, Inc. 10K, 2012). All the changes made in 2012 investing activities assisted ADP in showing a new cash flow in investing activities. In 2012, ADP acquired 7 businesses for a total Purace price of $301.0 million (ADP, Automatic Data Processing, Inc. 10K, 2012). The net change in cash and cash equivalents was much higher compared to the previous two years, which assisted ADP in showing a noteworthy increase in cash flow for 2012. There was a slight decrease from 2012 to 2013 in cash flow and that was caused by a heave decrease in investing cash flow and cash from investing activities in 2013, when 2012 showed the opposite. They also showed an increase in financing cash flow items, compared to previous years.