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Automatic Data Processing, Inc. Just Beat EPS By 46%: Here's What Analysts Think Will Happen Next

Simply Wall St
·4 mins read

Automatic Data Processing, Inc. (NASDAQ:ADP) investors will be delighted, with the company turning in some strong numbers with its latest results. It was overall a positive result, with revenues beating expectations by 6.1% to hit US$3.5b. Automatic Data Processing also reported a statutory profit of US$1.40, which was an impressive 46% above what the analysts had forecast. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.

See our latest analysis for Automatic Data Processing

earnings-and-revenue-growth
earnings-and-revenue-growth

Following last week's earnings report, Automatic Data Processing's 16 analysts are forecasting 2021 revenues to be US$14.6b, approximately in line with the last 12 months. Statutory earnings per share are expected to decrease 3.4% to US$5.59 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$14.2b and earnings per share (EPS) of US$4.90 in 2021. There's been a pretty noticeable increase in sentiment, with the analysts upgrading revenues and making a nice increase in earnings per share in particular.

It will come as no surprise to learn that the analysts have increased their price target for Automatic Data Processing 8.6% to US$162on the back of these upgrades. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values Automatic Data Processing at US$197 per share, while the most bearish prices it at US$136. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's pretty clear that there is an expectation that Automatic Data Processing's revenue growth will slow down substantially, with revenues next year expected to grow 0.02%, compared to a historical growth rate of 6.0% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 14% per year. Factoring in the forecast slowdown in growth, it seems obvious that Automatic Data Processing is also expected to grow slower than other industry participants.

The Bottom Line

The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Automatic Data Processing's earnings potential next year. Fortunately, they also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.

With that in mind, we wouldn't be too quick to come to a conclusion on Automatic Data Processing. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for Automatic Data Processing going out to 2025, and you can see them free on our platform here..

You can also see whether Automatic Data Processing is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.

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