Will Earnings Send ADP to All-Time Record Highs?

On Friday, Automatic Data Processing (NASDAQ: ADP  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise.

As a huge player in the payroll processing and human-resources industry, ADP is closely connected to the pulse of the overall economy and particularly the employment picture. Yet even with a slow recovery in the job market, ADP has soared to highs it hasn't seen since the tech boom. Let's take an early look at what's been happening with Automatic Data Processing over the past quarter and what we're likely to see in its report.

Stats on Automatic Data Processing

Analyst EPS Estimate

$0.98

Change From Year-Ago EPS

7.7%

Revenue Estimate

$3.11 billion

Change From Year-Ago Revenue

6.3%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Will ADP keep its own job this quarter?
Analysts have slightly reduced their views on ADP's earnings in recent months, cutting $0.02 per share from their estimates for the just-finished quarter and a penny per share on their fiscal 2013 and 2014 earnings consensus. Yet the stock is up 13% since late January, reflecting greater investor optimism about its future prospects.

Many investors believe that ADP is all about basic payroll processing. But the company has moved broadly into more innovative areas recently, such as its cloud-based human capital management platforms. By providing a one-stop solution for big businesses seeking to manage payroll, health insurance, and other benefits all while complying with new Obamacare laws and other regulations, ADP is aiming to use technological advances to boost the quality of its service, and the company scored its 40,000th HCM client during April.

ADP has also made strategic agreements that enhance its business. For instance, a recently renewed program with Visa allows ADP to offer employers prepaid Visa cards to make paying employees more efficient. Such moves will become increasingly important if ADP wants to encroach on rival Paychex (NASDAQ: PAYX  ) and its traditional area of strength among small and mid-sized businesses.

ADP still faces a threat of its own from Intuit (NASDAQ: INTU  ) , which has built up a strong reputation with its tax and business-accounting software. Although Intuit's primary clientele has consisted of smaller customers with limited resources, the company has set its sights much higher, and moves to grab up the more-lucrative large-scale payroll processing and health-care benefits management markets could put a dent in ADP's competitive dominance.

In ADP's quarterly report, watch for comments about the company's RUN payroll and HR platform, which hit the 200,000 mark for small-business clients earlier this week. If ADP can get itself into business offices before their big growth spurts, it should be much more successful in capturing those corporate customers for life.

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