These days, business services provider Automatic Data Processing
And lean times they've been for ADP. The company recently announced that fiscal second-quarter earnings per share declined 12% to $0.38, even though revenues increased 9%. Management blamed the stumble on dilutive acquisitions, ADP's exit from the medical claims business, and low interest rates -- which cut down the gravy that can be gained by investing as-yet-uncashed paychecks.
There were a few more bummers to behold, though. The number of North American employees serviced by the firm remained flat, while the tallies from European operations were slightly negative. The company is hopeful that increases in its higher-margin brokerage services outfit can help counteract the drops, but they won't be enough to turn things around completely: Management narrowed fiscal 2004 earnings guidance to $1.53 - $1.58 per share. If that holds, it will mark the third year of decline since 2002's high-water mark of $1.75.
Priced at over 26 times fiscal 2004 estimates, ADP looks too rich to me. Smaller competitor Paychex
Why the high multiples? Investors seem to be banking on increases from hypothetical job growth, but Fools should know better than to overpay for stocks whose future outperformance is based on wishful thinking. Cast your lines elsewhere. There are plenty of fish in the lake.
Wondering how to stretch that check that ADP prepared for you? Check out the Fool's Living Below Your Means board.