Payroll processing may sound about as fun as watching millions of beer cans pass down a conveyor belt (well, actually, that may be a thrill for a few froth-filled fans -- there's a Budweiser commercial in there somewhere), but don't let the sleepy sound of this market fool you. There's money to be made from other peoples' paychecks -- a lot of money. Paychex (NASDAQ:PAYX) and Automatic Data Processing (NYSE:ADP) are two leading enterprises that cash in when you and I cash in.
Both companies' stocks took a dive in 2002, when the market was reeling from a recession, corporate scandal, and war, but since then, each company has gradually rebounded. While neither is near all-time highs, the latest results from ADP suggest that things are continuing on the up-and-up.
ADP's fiscal 2005 fourth-quarter revenues climbed higher by 10% from the same period last year to $2.3 billion. The company is witnessing growth across the board, but it particularly highlighted new business as a source of strength. This segment grew 16% over the same period a year ago.
ADP also continues to make operational improvements. Total expenses as a percentage of revenue declined to 82.1% compared with last year's level of 83.8%. This change led to net income of $258.8 million -- higher by 22%.
Looking ahead, the company estimates a continuation of its steady growth trajectory. ADP anticipates revenue growth to be in the high single digits for fiscal 2006, with an increase in its earnings per share of 15% to 20%.
If we use its earnings growth as a guide, at a forward P/E of 19, ADP appears to sport a reasonable valuation. Throw in a stellar balance sheet that includes $1.7 billion in cash and marketable securities, with a negligible long-term debt position, and you have yet another reason to consider this company as a long-term investment.
See what its competition is up to:
- Bigger Paychecks From Paychex?
- Paychex Comes Up Short
- Paychecks From Paychecks
- Financials Worth Endorsing
Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.
