ADP Bets on Small Businesses to Beat Dismal Jobs Reports

ADP recently reported that job creation is slowing, which could spell a troubling trend for the largest payroll processor in the U.S. The number of jobs created dropped to 114,000 in July from 145,000 in June, ADP reported. In addition, employers cut more than 66,000 jobs in July, according to consulting firm Challenger, Gray & Christmas.

But recent moves to focus more on small businesses -- which are creating the bulk of the new jobs -- support a brighter outlook for the company.

We have recently revised our Trefis price estimate for ADP to $56.65 per share, which is approximately 15% above the market price, based on the company's fourth-quarter earnings and its reported forecasts for 2012.

Despite concerns in the job market, we are bullish on ADP for the following reasons:

1. ADP Focusing on Small Businesses as They Add Jobs

Small businesses have been increasing hiring for nearly two years now, according to the ADP report. Companies with fewer than 50 employees added 58,000 jobs nationwide in July, while businesses with 50 to 500 workers hired 47,000 people -- and only 9,000 new positions came from large firms with more than 500 staffers, according to the study. It's also worth noting that as many as 57% of July's layoffs came from just five companies, implying that the job scenario at small businesses is actually not bad.

Identifying the increasing importance of small business clients, ADP has been ramping up its service offerings to the segment. With small businesses leading the trend towards increasing mobility, ADP launched its popular payroll-management platform for small business on the iPhone and Android smartphones. (See ADP Targets Small Business Clients through Android Payroll Platform.)

As ADP continues to expand and refine its services to better cater to small businesses, its number of small-business clients can be expected to rise in the future.

2. Expanding Non-Payroll Services to Drive Revenue Growth

ADP expects high-single-digit revenue growth in the 2012 fiscal year, backed by its solid sales performance and investment in product innovation. Even more encouraging is the fact that the revenues are expected to increase across the segments. In particular, revenues from human-resources outsourcing and other professional-employer services are expected to grow by more than 15%. ADP's recent push beyond payroll services -- including human resources, recruiting and talent management, background checks and benefits administration -- could help drive that growth.

With more services to offer, the fee that ADP charges per worksite employee will likely rise in the future.

See our full analysis of ADP.

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9 Comments

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p625m

Mercy, we need another Ronald Reagan to encourage our country as we are the USA.

It could be a Rubio, or someone else, until we get a leader, we will have another Jimmy Carter.

Been there and done that, I am old guy.

Despair not, we are America, we will come on top.

As Winston Churchill said of us, after we do all options, we will do the right thing.

August 08 2011 at 10:56 PM Report abuse rate up rate down Reply
davandsher

I have seen Øbama's " Hope and change " I "hope" I can find a job soon and the "change" is what I have in my pocket.

August 08 2011 at 8:09 PM Report abuse rate up rate down Reply
trukut

what a bunch of BS. do you think the sb owners are that stuiped to buy this BS. We SB are the one's keeping the things going this far in this CRAP of a economy. One buy One i have seen them fall/ and taking my money with them when they do !!!!!! Gust how long can any SB keep taking up the slack and keep paying and paying and paying for all. not. long !!! and then whats left. ??????????????????????????????????????????

August 08 2011 at 7:51 PM Report abuse rate up rate down Reply
mweberhbr

i am getting rid of two employees just after labor day as my season will be over . it will start again in early feb 2012 but i serioulsy doubt i will hire anyone else going to try and scrape by with bare minum just to make back what we have lost the last three years.

August 08 2011 at 7:50 PM Report abuse rate up rate down Reply
Craig and Valisha

ADP has not woke up to what is going on.

August 08 2011 at 7:20 PM Report abuse rate up rate down Reply
Hope and Future

For those of you that do not have jobs go to BEST TOP JOBS to look for work. It is free and has legitimate companies that hire people to work at their house.ment here

August 08 2011 at 6:33 PM Report abuse rate up rate down Reply
tersimp

Yep, what a bunch of crap. Closing my small business at the end of the year. Rosecabinets, could not have said it better myself. It has been very slow and painful.

August 08 2011 at 6:03 PM Report abuse rate up rate down Reply
rosecabinets

You and ADP are dreaming and just printing words. Small businesses are dying a slow and painful death.
Banks dont loan us money, the state and federal governement keeps piling rules and taxes to ruin us.
As a small business owner watching my suppliers and other competitors closing their doors, ADP, AOL and the rest of the news agancies print only make believe. You cant wish or write small business problems away. Our governement does not believe in small business or capitalism anymore! Wake up ADP stop lying to everyone!!!

August 08 2011 at 3:59 PM Report abuse +3 rate up rate down Reply
Ed Avolio

So much for small businesses reviving the economy! You can’t revive an economy when Multinationals can produce products offshore with wages as low as 50 cents an hour with no benefits. America is being misled by politicians of both parties. The Republican claim that raising taxes on the rich (companies and individuals) will cost jobs. The truth is that there is no amount of tax breaks for companies that will induce them to produce products in the US when the can produce offshore at much lower wages and no environmental, safety, SS or Medicare payroll contributions. The Democrats keep harping on their social agenda to get elected while knowing that without a healthy economy they can’t pay for the benefits. Make products SOLD in the US suffer the same constraints as MADE in the US is the only hope of reviving the US economy. Tax breaks and stimulus programs only provide money to buy more offshore products.

August 08 2011 at 2:56 PM Report abuse rate up rate down Reply