Thursday, June 14, 2012

Automatic Data Processing (ADP) 2012 Review

Automatic Data Processing (ADP) provides payroll and tax filing services, brokerage services, comprehensive human resource services and financial services to auto and truck dealerships.

The company has grown profits and dividends 7-14% over the last 10 years and has earned an 18-20% return on equity. While the 2008-2009 recession impacted ADP somewhat, it did very well relative to other companies. Long term, the company should continue to prosper based:

(1) the economic recovery has led to an increase in both customers and the number of checks processed,

(2) the contribution from the recent acquisitions [8 in the last year],

(3) a dedicated effort to technological upgrades,

(4) its stock buy back program.

(1) a decline in the interest earned on funds held,

ADP is rated A++ by Value Line, has only 1% of its capitalization in debt and its stock yields 3.1%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2002
ADP 3.1% 7% 56% 10
IND 1.4 9 23 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
ADP 1% 21% 2 13% A++
IND 15 23 NA 12 NA


Note: ADP stock made great progress off its October 2008 low, surpassing the downtrend off its November 2007 high (straight red line) and the November 2008 trading high (green line). Long term, the stock is in an up trend (blue lines). Intermediate term it is also in an uptrend (purple lines). The wiggly red line is the 50 day moving average. The Dividend Growth Portfolio owns a one half position in ADP by virtue of having sold half when the stock entered its Sell Half Range. The upper boundary of its Buy Value Range is $36; the lower boundary of its Sell Half Range is $53.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.