Billionaire Bill Ackman recently shared his thoughts on Automatic Data Processing, Inc. (NASDAQ:ADP) in Pershing Square’s Q1 2019 Investors Letter (track down here). According to him, the company has a good chance to boost its top-line revenue growth and expand margins. Pershing Square also disclosed its quarterly return in the letter, reporting a 36.9% increase of NAV per share.
“Automatic Data Processing, Inc. (“ADP”)
ADP’s fiscal third quarter earnings results continue to highlight the significant opportunity for accelerated revenue growth and improved prospective profitability. ADP reported 4% revenue growth (5% organic constant-currency), 10% growth in adjusted operating profit (aided by 130 basis points of margin expansion), and 13% growth in adjusted EPS. While revenue growth was somewhat softer than recent prior quarters, ADP’s bookings growth – a leading indicator of future revenue growth – jumped to 10%, a significant acceleration from previous periods.
ADP continued to execute on its ongoing business transformation in the quarter by generating better-than-expected Employer Services operational margins which increased 170 basis points during the quarter. These improved margins are particularly notable despite the quarter’s bookings growth acceleration, which would typically cause margins to decline principally due to the upfront selling costs associated with new bookings. In response to better-than-expected margin expansion,
ADP once again increased its fiscal year 2019 earnings-per-share guidance by 19% to 20% over the previous year. ADP shares have appreciated 21% year-to-date. We continue to believe that ADP has a significant opportunity to accelerate top-line revenue growth and expand margins, which should allow ADP to compound earnings at a mid-to-high-teens growth rate for many years to come.”
Automatic Data Processing, Inc., (ADP) is a $70.44 billion market cap company that provides a variety of professional human resources-related services. It runs through two segments: The Employer Services and Professional Employer Organization. The company was founded back in 1949, and through 2014 it was one of the four American Companies among the S&P 500 to have a AAA credit rating from both Moody’s and Standard & Poor’s. Its headquarters is in Roseland, New Jersey.
Year-to-date, the company’s stock is up by 24.37%, having a closing price of $161.85 on May 24th. ADP is trading at a price-to-earnings ratio of 41.90.
Heading into the first quarter of 2019, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ADP over the last 14 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Automatic Data Processing (NASDAQ:ADP) was actually held by Pershing Square, which reported holding $533.7 million worth of stock at the end of September. It was followed by Generation Investment Management with a $466.8 million position. Other investors bullish on the company included Cedar Rock Capital, Arrowstreet Capital, and D E Shaw.
This article is originally published at Insider Monkey.