Automatic Data Processing (ADP) Reports Next Week: Wall Street Expects Earnings Growth

Oall Street expects higher year-over-year earnings on the back of higher revenue when Automatic Data Processing (ADP) reports results for the quarter ending June 2022. While this largely consensus outlook known to be important in gauging the company’s earnings, a powerful factor that could impact its stock price in the short term is how actual results compare to those estimates.

The earnings report, which is expected to be released on July 27, 2022, could help the stock rise if these key numbers come in better than expected. On the other hand, if they are missing, the stock may go down.

While management’s discussion of trading conditions in the earnings call will primarily determine the sustainability of the immediate price move and future earnings expectations, it’s worth a crippling glimpse of the chances of a positive surprise from BPA.

Zacks consensus estimate

This payroll and HR company is expected to post quarterly earnings of $1.48 per share in its next report, representing a year-over-year change of +23.3%.

Revenue is expected to be $4.05 billion, up 8.5% from the prior year quarter.

Trend of estimate revisions

The consensus EPS estimate for the quarter has been revised upwards by 0.4% in the past 30 days from the current level. This essentially reflects how the covering analysts have collectively reassessed their initial estimates over this period.

Investors should keep in mind that an overall change may not always reflect the direction of revisions to estimates by each of the analysts involved.

Revenue whisper

Estimate revisions prior to a company’s earnings release provide clues to business conditions for the period for which earnings are released. Our proprietary surprise prediction model — the Zacks ESP Earnings (Expected Surprise Prediction) – has this idea at its core.

The Zacks Earnings ESP compares the most accurate estimate to the Zacks consensus estimate for the quarter; the most accurate estimate is a more recent version of Zacks Consensus’ EPS estimate. The idea here is that analysts revising their estimates just before the earnings release have the latest information, which could potentially be more accurate than they and other consensus contributors predicted earlier.

Thus, a positive or negative reading of the ESP on earnings theoretically indicates the likely deviation of actual earnings from the consensus estimate. However, the predictive power of the model is only significant for positive ESP readings.

A positive earnings ESP is a good predictor of an earnings beat, especially when combined with a Zacks rank of #1 (strong buy), 2 (buy), or 3 (hold). Our research shows that stocks with this combination produce a positive surprise almost 70% of the timeand a strong Zacks ranking actually increases the predictive power of Earnings ESP.

Please note that a negative ESP reading on earnings is not indicative of a shortfall. Our research shows that it is difficult to predict an earnings beat with any degree of confidence for stocks with negative ESP readings on earnings and/or a Zacks rating of 4 (sell) or 5 (strong sell).

How have the numbers evolved for ADP?

For ADP, the most accurate estimate is above the Zacks consensus estimate, suggesting that analysts have recently become optimistic about the company’s earnings outlook. This translated into an ESP on revenue of +2.86%.

On the other hand, the stock currently carries a Zacks rank of No. 3.

Thus, this combination indicates that ADP will most likely exceed the BPA consensus estimate.

Does the history of the earnings surprise contain a clue?

Analysts often look at how well a company has been able to match consensus estimates in the past while calculating its estimates for future earnings. It is therefore worth taking a look at the surprise history to assess its influence on the number to come.

For the last reported quarter, ADP was expected to post a profit of $2.07 per share when it actually generated a profit of $2.21, offering a surprise of +6.76%. .

Over the past four quarters, the company has beaten consensus EPS estimates four times.

Conclusion

A beat or failure in earnings may not be the only basis for a stock to move higher or lower. Many stocks end up losing ground despite declining earnings due to other factors that disappoint investors. Similarly, unexpected catalysts help a number of stocks gain despite a shortfall.

That said, betting on stocks that are expected to exceed earnings expectations increases the odds of success. That’s why it’s worth checking a company’s ESP earnings and Zacks ranking before it’s quarterly release. Be sure to use our Income ESP filter to discover the best stocks to buy or sell before they are released.

ADP appears to be a compelling candidate for earnings. However, investors should also pay attention to other factors to bet on this stock or walk away from it before its results are released.

Stay up to date with upcoming results announcements with the Zacks Earnings Schedule.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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