ADP - Embedded Expectations Analysis - 2020 01 24
Automatic Data Processing, Inc. (ADP:USA) currently trades well above corporate averages relative to UAFRS-based (Uniform) Earnings, with a 27.4x Uniform P/E, implying bullish expectations for the firm. However, management may be concerned about new PEO client conversion, revenue growth, and premium increases.Specifically, management may lack confidence in their ability to transition payroll clients to become PEO clients, maintain client retention rates, and sustain organic revenue growth. In addition, they may be exaggerating the functionality and accuracy of their data cloud benchmarking, and they may be downplaying concerns about potential macro pressures. Furthermore, management may be concerned about their premium increase issues, the impact of their voluntary early retirement program, and the lack of initiatives in-place to expand margins beyond fiscal 2020.
Automatic Data Processing is a provider of cloud-based human capital management (HCM) solutions to employers, providing solutions to businesses of various sizes. The company's two reportable business segments are Employer Services, which provides a range of technology-based HCM solutions, including payroll services, benefits administration, talent management, HR management, workforce management, compliance services, insurance services and retirement services; and Professional Employer Organization, which provides clients with employment administration outsourcing solutions through a relationship in which employees who work for a client are co-employed by the company and the client.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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