Automatic Data Processing Inc. (ADP), which I first wrote about on May 8, 2009, at a price of $36.84, is doing battle with major, psychological resistance at $50, but the view from here argues the uptrend is stronger and should prevail. Here's why:
Look for ADP's FY2011 revenue to increase 4% to 7% on better-than-expected U.S. monthly job growth and business formation. A 4% to 6% revenue rise is likely in FY2012.
Further, longer-term, the payroll out-sourcing market has ample room for market share gains and the mining of new clients, especially small/medium sized businesses, also is appealing. International business opportunities and a strong balance sheet further supports the favorable view.
In addition, retention rates are up and a better-than-decent annual dividend of $1.44 -- roughly a 3% yield a $46 share price -- adds to the positive story.
The Thomson Reuters First Call FY2011/FY2012 EPS estimates for ADP are $2.50 to $2.69. Each EPS estimate looks about 5% low, according to my analysis.
2011 Outlook: I view Automatic Data as a long-term play, but if you're looking to sell ADP within the year, it's probably best to take your profits after it rises to $56 to $59, if it fails to clear $60.
Stock Analysis: I consider Automatic Data Processing Inc. to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 50% position in ADP now. I'd put a sell/stop loss at $37.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.