Automatic Data Processing (ADP 1.83%) stock is gaining ground Wednesday despite pressures from the broader market. The company's share price was up 1.7% as of 3:30 p.m. ET amid a 0.5% decline for the S&P 500 index and a 0.7% drop for the Nasdaq Composite index. The stock had been up as much as 4.5% earlier in the day.
NASDAQ: ADP
Key Data Points
Before the market opened this morning, ADP published results for the second quarter of its current fiscal year, which ended Dec. 31. In addition to sales and earnings performance that beat the average analyst estimate, the company also delivered forward sales guidance that beat Wall Street's forecast and raised its outlook on some other metrics.
ADP stock climbs on second-quarter sales and earnings beats
ADP reported non-GAAP (adjusted) earnings per share of $2.35 on sales of $5 billion for last quarter, beating the average Wall Street estimate's target for per-share earnings of $2.30 on sales of $4.96 billion. ADP's revenue climbed roughly 8% year over year in the period, and margins came in stronger than anticipated.
Sales for the employer services segment rose 8% year over year to $3.39 billion. Professional employer organization (PEO) revenue also increased at an 8% year-over-year rate, coming in at $1.66 billion. Net income for employer services increased 11% to $1.18 billion, while earnings for the PEO segment fell 1% year over year to $252 million.
What's next for ADP?
For the full year, ADP expects sales growth to come in between 6% and 7%, with the midpoint of that guidance range beating the average Wall Street estimate's call for growth of roughly 6.2%. The company also said that it expected adjusted earnings per share to come in between 7% and 9%. While the midpoint of this guidance fell short of the average analyst target for growth of roughly 8.4%, the company had some encouraging news to share on other fronts.
ADP now expects average client-fund balances to increase between 4% and 5% -- up from its previous target for growth between 3% and 4%. It also anticipates that revenue from client-funds interest will be between $1.14 billion and $1.16 billion -- up from its previous target for revenue between 41.11 billion and $1.14 billion.
With today's gains, ADP is now valued at roughly $123.6 billion and trades at approximately 30.5 times this year's expected earnings. While the company has a solid position in its core markets, there's some strong growth already priced into the stock at current levels.
