Time to get-ahead-of-the-pack with ADP

Posted May 8th 2009 6:00PM by Joseph Lazzaro

Automatic Data Processing (NYSE: ADP) is a play that's for the daring only. ADP, the largest provider of payroll outsourcing services in the world, is likely to register flat to slightly declining revenue in FY 2009.

Further, price pressure stemming from new alternate payroll/tax filing options, and incremental additions to payrolls -- mass hirings will be the exception, not the rule -- will likely lead to less-robust growth than during the previous two economic expansions.

Even so, customer retention, and well-capitalized ADP's ability to increase market share among small to mid-sized businesses, and its international business expansion opportunities, tips the scale in favor of a Buy. The First Call FY 2009/FY 2010 EPS estimates for ADP are $2.39 to $2.45.

Further, technically, ADP's chart appears to be signaling a bottom in the $30-range, as a recent re-test of $30 lows held support and bounced off $32.

Stock Analysis: Automatic Data Processing is a high-risk stock. Consider buying a 25% position in ADP now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your ADP position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $22.

- -

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: ADP, Automatic Data Processing, hiring