ADP Posts Strong Q4 Beat with Tailwinds from Switching Costs and Hot Labor Market
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ADP reported strong Q4 results, beating on both EPS and revenues. The share price is up 5% YTD, though has lagged the S&P500 over 5 years.
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ADP benefits from high switching costs and pricing power due to integration into HR functions. Innovation and R&D builds competitive intangible assets.
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ADP is the 3rd largest player in HR management industry, with 5-year revenue CAGR of 6%. Industry projected to grow at 12.7% through 2030.
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Margins have expanded 700bps over last decade to 25.5% due to pricing power. Capital strategy funds dividends, R&D, and aggressive share repurchases.
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U.S. labor market strength, with low unemployment and high job openings, provides tailwind. Management confident in growth prospects.