This company warned that earnings would be slowing to only 16% in 2017. That is down from 20% in Q4 so the stock was knocked for a loss. The bad news is now priced into the stock and 16% growth is still very good.
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ADP - Automatic Data Processing - Company Description
Automatic Data Processing, Inc., together with its subsidiaries, provides business process outsourcing services worldwide. The company operates through two segments, Employer Services and Professional Employer Organization (PEO) Services. The Employer Services segment offers a range of business outsourcing and technology-enabled human capital management (HCM) solutions, including payroll services, benefits administration services, talent management, human resources management solutions, time and attendance management solutions, insurance services, retirement services, and tax and compliance solutions. This segment's integrated HCM solutions include RUN Powered by ADP, ADP Workforce Now, ADP Vantage HCM, and ADP GlobalView, which assist employers of all sizes in all stages of the employment cycle from recruitment to retirement; and ADP SmartCompliance and ADP Health Compliance. The PEO Services segment provides a human resources (HR) outsourcing solution through a co-employment model to small and mid-sized businesses. This segment offers ADP TotalSource that provides various HR management services and employee benefits functions, such as HR administration, employee benefits, and employer liability management into a single-source solution. Company description from FinViz.com.
Earnings for the last quarter rose 20% to 87 cents and analysts were expecting 81 cents. Revenues of $2.99 billion rose 6% but missed estimates for $3.02 billion.
They guided for lower than expected bookings for 2017. The CEO said the decline in expectations was driven by the uncertainty surrounding the election but now that a new administration was in place they expected their bookings pressure to ease. "Despite the recent uncertainty in the U.S. business environment, we continue to believe that change will be beneficial to us, as we are well-positioned to help our clients navigate the complexities of HCM (human capital management)."
They are now expecting 6% revenue growth in 2017 compared to prior forecasts for 7% to 8%. Worldwide new business bookings would be similar to the $1.75 billion sold in 2016 compared to prior forecasts for 4% growth. They expect earnings to rise 15% to 17% over 2016.
ADP is rapidly expanding their Total Service product where they provide comprehensive outsourcing solutions where workers are co-employed by ADP and its clients. Revenue in that division rose 16% with 12% earnings.
Earnings May 3rd.
Shares crashed on the lowered guidance but are rebounding now that the market is improving. The bottom line is that earnings are expected to rise 16% and the emphasis on jobs by the Trump administration is going to be positive for ADP. Long term investors are going to see the $2.28 dividend and the double digit earnings growth and assume the worst is already priced into the stock with the post earnings drop.
Buy May $100 call, currently $2.10, initial stop loss $94.50.
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