ADP’s Q4 EPS Tops Estimates, Issues Upbeat FY17 Outlook

ADP’s Q4 EPS Tops Estimates, Issues Upbeat FY17 Outlook
August 2, 2016

The shares of Automatic Data Processing Inc. (Nasdaq: ADP) declined to $88.67 on Monday, following the announcement of fiscal 2016 fourth-quarter revenue that missed the analysts’ estimates. The global provider of cloud-based human capital management solutions, however, reported a rise in the fourth-quarter revenue, compared to the prior-year’s similar quarter. Due to the reasons discussed below, we believe that the share price of Automatic data procession would remain in an uptrend in the first-quarter of fiscal 2017.

The New Jersey-based BPO solutions provider reported a 7.5% y-o-y increase in the fourth-quarter revenue to $2.898 billion, but missed the Wall Street estimates of $2.933 billion. The 67 year old company’s fiscal 2015 fourth-quarter revenue was $2.694.5 billion. The earnings from continuing operations for this quarter were $282 million or $0.62 per share, compared to $257 million or $0.55 per share in the Q4 last year. The company had no discontinued operations in the fourth-quarter.

Excluding charges related to workforce optimization effort and income tax benefits, the $40 billion (market cap) company reported fourth-quarter non-GAAP earnings of $313.8 million, up from $257 million in the prior-year’s similar quarter. The adjusted earnings for Q4 2016 were $0.69, against $0.55 per share in the Q4 2015, and higher than the Zacks estimate of $0.67 per share.

The company also gave its estimates for the fiscal 2017. ADP anticipates a y-o-y revenue growth of 7% to 9% in the current fiscal year. The company reported revenue of $11.7 billion in the fiscal 2016.

ADP also expects the full year 2017 EPS from continuing operations to rise between 6% and 8% from the fiscal 2016 earnings of $3.25 per share. The company also forecasts fiscal 2017 adjusted EPS from continuing operations to grow from 10% to 12% over the fiscal 2016 adjusted earnings of $3.26 per share. ADP also anticipates fiscal 2017 share repurchase expense to rise between $1 and $1.4 billion. The share repurchase program is expected to be funded by the available cash.

In the case of a decline in the share price, the chart indicates a possible support for the stock between 85 and 87. The stochastic indicator can be expected to reverse as shown in the sub-chart, based on the past moves.

ADP - Technical Analysis - 2nd August 2016

Thus, speculating on a reversal near the 85-levels, through the purchase of a one touch call option, is the only option currently available with high probability of success. A strike price of $95 or lower would be beneficial to the trade. A time period of about four weeks is required for the share price to test the support level, consolidate, rise, and violate the recommended target price.


Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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