What: CDK Global Inc (NASDAQ:CDK) stock surged today after the company announced a new plan aimed at enhancing its long-term value. The plan is expected to transform the business through balanced organic revenue growth and a focus on margins, which will significantly boost future earnings. At 12:50 p.m., shares were up 9.4% from the previous day's close. Shares were up 12.5% earlier in the day. CDK "provides integrated information technology and digital marketing/advertising solutions to the automotive retail industry"
So what: CDK Global's plan is built on the three pillars of driving operational excellence, delivering organic revenue growth, and disciplined capital allocation. The foundation of the plan is built upon driving organic revenue growth with the company expecting to deliver 4%-5% average annual revenue growth over the next three to five years and 5%-7% annual revenue growth thereafter. Further, the company is also targeting margin growth, which when combined with revenue growth would really provide a big boost to its bottom line. The combined result of the plan is expected to result in $1 billion of free cash flow being generated over the next three years, 70%-80% of which will be returned to shareholders via dividends and share repurchases.
Now what: CDK Global is only recently public as it was just spun out of ADP last October. However, now that it has been on its own for a few months, the company's management team has a better handle on what the company is capable of delivering over the next few years. As a result the company has developed an actionable plan that is not only growth-oriented, but is also very shareholder-friendly.
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