Meanwhile, ADP has reported relatively better growth in its business units, although its overall revenue has been limited by the low interest rates that it receives on the large fund balances that it holds for customers. In the first six months of FY2013, the company reported increases in revenues and adjusted operating income of 6.0% and 3.0%, respectively, versus the prior-year period. ADP, like Aon PLC (NYSE:AON), has seen profit pressures due to the rising costs of delivering its labor-intensive administrative services.
However, ADP continues to increase its overall market opportunity by organically expanding its new segments, including ventures involved in health care IT management, equipment dealer services, and professional employer organization (PEO) services. In 2012, the company achieved its highest growth in the PEO segment, where ADP and its employees partner with clients and become their de-facto human resources department. This relationship also positions ADP for future sales opportunities, including retirement administration and flexible spending plans.
WageWorks’ business is currently strong, but it is somewhat susceptible to the implementation of the federal government’s health care legislation starting in 2014. In addition, the company needs to continue diversifying its product mix, as its competitors try to position themselves as gatekeepers to companies’ benefit programs. Investors should put Wageworks Inc (NYSE:WAGE) on the watchlist, though, and wait for a pullback to buy.
The article Can This Upstart Compete With the Benefits Giants? originally appeared on Fool.com and is written by Robert Hanley.
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