Harry Domash, Dividend Detective, chose Automatic Data Processing (ADP) as his top conservative idea for 2019. The stock has risen 26%. Here's his latest update on this payroll services firm.

Automatic Data Processing is the largest U.S.-based supplier of payroll processing, benefits management, tax reporting and related data processing services to mid-sized companies.

Until last year, ADP was losing business because it was relying on obsolete software and wasn’t keeping up with the competition. However, ADP took steps to resolve those issues, including making key acquisitions, and growth resumed last year. 

A relatively new product, Professional Employer Organization (PEO) services, offers payroll, human resources guidance, retirement plan and health benefits administration, and similar services. PEO, growing revenues around 10% annually, is ADP’s fastest growing business.

Despite a March quarter revenue shortfall (4% vs. 6% forecast), ADP reported earnings of $1.77 per share, $0.08 above analysts’ forecasts and up 16% vs. year-ago. ADP expects to report around 7% full-year revenue growth and around 20% earnings growth in 2019. Analysts are forecasting 25%.

Automatic Data Processing is currently paying $0.79 per share dividends equating to a not too exciting 2.0% dividend yield. However, last year, in November, ADT announced a 14% dividend hike. If ADP meets this year’s forecasts, we could expect a similar or higher raise this year.

Despite the company's strong earnings growth numbers, only five of the 17 analysts covering the firm are recommending buying its shares. The other 12 are at “hold,” which many market players interpret as recommending selling.

If ADP does record the expected strong growth numbers, some of those 12 naysayers are likely to upgrade their advice, adding to ADP’s share price upside potential.  Bottom line: In our view, Automatic Data Processing share price still has room to run.

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