ADP shares fall as analysts say growth may slow

Shares of Automatic Data Processing Inc. fell Friday as several analysts warned of slower growth going forward.

Late Thursday, the Roseland, N.J.-based outsourcing services company said its fiscal third-quarter profit rose 6 percent, beating Wall Street's estimates. ADP also said it expects to hit the high end of its profit target range this fiscal year.

But some analysts cautioned that growth may slow in fiscal 2009.

"The business is beginning to see signs of deceleration as softening employment and difficult operating climate for corporate clients begin to catch up," said Deutsche Bank analyst Brandt Sakakeeny in a note to clients. Sakakeeny maintained a "Buy" rating and $48 target price on the stock.

ADP shares fell $2.12, or 4.7 percent, to close at $43.09. They have traded in a 52-week range of $37.74 to $50.30.

Both Sakakeeny and Citi Investment Research analyst Patrick Burton noted a slowing in the company's new business generation. ADP lowered its forecast for new business sales growth to high single digits. The company previously guided for sales growth in the high single digits to the low double digits.

Burton maintained a "Hold" rating on the stock, and raised his target price by $1 to $48.

Thomas Weisel Partners analyst David Grossman said recent interest rate cuts and slowing economic growth are largely discounted in the current price of the stock. He said the company's decelerating metrics should not be surprising, given weakening employment statistics and the fact that payroll is typically impacted later in an economic cycle.

Maintaining an "Overweight" rating and a $50 target price, Grossman added, "Our positive thesis remains driven by ADP's ability to execute on its growth strategy, continue to lower costs and improve margins independent of revenue growth and leverage its balance sheet to repurchase shares."