Qualcomm: Earnings Report for the Quarter Ending September 27, 2020

Qualcomm reported (https://tinyurl.com/y6n2f442) after the market closed on 29 July 2020 it earned $2.58 per diluted share in the quarter that ended on 27 September 2020, up 514% percent from earnings of $0.42 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP). 

Qualcomm makes chips and licenses mobile communications technologies that are used in many advanced wireless devices.  Qualcomm is now expecting that 5G mobile networks will lead to another growth spurt for the company. In April 2019, Qualcomm settled all litigation with Apple and Apple's contract manufacturers, which had threatened Qualcomm's licensing business.  Qualcomm lost a case where the Federal Trade Commission claimed Qualcomm violated antitrust laws to extract higher patent royalties from customers. Anti-trust concerns also ended up scuttling the company's planned acquisition of NXP Semiconductors for $44 billion.  More positively, in July 2020 Qualcomm and Huawei settled their disputes and reached a new long-term, global patent-license agreement.

Non-GAAP earnings rose 86% to $1.45 per share from $0.78 one year earlier, a percent change not as robust as seen with the GAAP figures. Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits. However, caution is warranted when analyzing these figures because management has considerable leeway in choosing which GAAP-required items to exclude.

The principal exclusions contributing to the $1.13 per share difference in the latest quarter between GAAP earnings and Non-GAAP earnings were: Strategic initiatives [$0.02 per share], Share-based compensation [$0.22 per share], and Huawei settlement agreement and other items [$1.32 per share].

Because Qualcomm has repurchased a significant quantity of its own shares, the average number of shares outstanding during the last quarter was 5.2% lower than one year ago. The smaller share count boosted earnings per share by $0.14.

Non-GAAP earnings of $1.45 per share in the latest quarter significantly beat the $0.71 average ("consensus") of estimates made by Wall Street analysts. See https://tinyurl.com/y5dpqpvs for Qualcomm's earnings record and forecasts.

Stock market traders reacted positively to Qualcomm exceeding expectations. The price of the company's shares rose 12.0% during after-hours trading following the report.

Looking deeper into the GAAP results, "top-line" revenue in the September 2020 quarter totaled $8.3 billion, 73% more than last year's $4.8 billion. The CDMA Technologies business was responsible for 60% of overall revenue, and this unit's revenue grew by 37.6% compared to the year-earlier result. The Technology Licensing business contributed 18% of revenue, and this unit's revenue grew by 30.1%.

The gross margin strengthened from 56.0% of revenue to 66.9%, a sign that Qualcomm sold its output and services at more profitable prices relative to production costs. Sales, general, and administrative expenses decreased from 11.4% to 6.6% of quarterly revenue, which shows the company spent less per dollar of sales on other operational costs, such as marketing. The effective income tax rate fell by 7.3% to 10.5%, which had a positive effect on net income.

Qualcomm's operating activities generated $1.7 billion in cash during the last quarter, up 41.9% from $1.2 billion in the year-earlier period. The cash flow delta was, therefore, not as robust as the change in earnings. Notable uses for cash included $734 million to pay dividends to shareholders, $26 million for corporate acquisitions,  and $348 million to acquire property, plant and capital equipment. 

Free cash flow over the last 12 months totaled $4.4 billion, or $3.84 per share using the latest share count. At the current market price per share of $145.41, this translates into a modest Free Cash Flow Yield of 2.6%.

The accompanying charts illustrate several trends in Qualcomm's financial results, taken from data in regulatory filings. The text and the charts are intended to provide some limited historical context for readers interested in the company’s finances. No investment advice is provided, and no investment offer of any kind is made or solicited. The accuracy of the information presented is not guaranteed, and readers are encouraged to independently verify all data.

#qualcomm    #qcom    #earnings    #nac_financialanalysis

Meredith: Earnings Report for the Quarter Ending September 30, 2020

Meredith reported (https://tinyurl.com/y6tg6hex) before the market opened on 5 November 2020 it earned $0.88 per diluted share in the quarter that ended on 30 September 2020, up from a loss of $0.30 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP), per (http://goo.gl/xOz5a). 

Meredith Corporation, which has roots going back 115 years, is a media company with television, print, and digital properties.  The company's Local Media business owns 17 television stations.  Its National Media group publishes well-known magazines, such as People and Better Homes & Gardens. In January 2018, Meredith acquired Time, Inc., for $2.8 billion, but.  Meredith ultimately sold or closed some famous magazines (including, TIME, Sports Illustrated, Fortune, and Money) it bought to focus more on entertainment and lifestyle publications.  In response to the "extremely challenging advertising environment” of the COVID-19 era, Meredith "paused" its dividend, cut pay for executives and employees, and significantly reduced capital expenditures.

Earnings from continuing items before special items, a non-GAAP figure, rose 3,367% to $1.04 per share from $0.03 one year earlier. Earnings from continuing items before special items, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits. However, caution is warranted when analyzing these figures because management has considerable leeway in choosing which GAAP-required items to exclude.

The principal exclusions contributing to the $0.16 per share difference in the latest quarter between GAAP earnings and Earnings from continuing items before special items were: Severance and related costs [$0.20 per share], Integration and restructuring costs [$0.06 per share], and Other [($0.09) per share].

Earnings from continuing items before special items of $1.04 per share in the latest quarter significantly beat the $0.19 average ("consensus") of estimates made by Wall Street analysts. See https://tinyurl.com/y3jk5u7y for Meredith's earnings record and forecasts.

Stock market traders reacted positively to Meredith exceeding expectations. The price of the company's shares rose 23.6% during the trading day following the report.

Looking deeper into the GAAP results, "top-line" revenue in the September 2020 quarter totaled $694 million, 4% less than last year's $725 million. The National media business was responsible for 67% of overall revenue, and this unit's revenue fell by 12.2% compared to the year-earlier result. The Local media business contributed 33% of revenue, and this unit's revenue grew by 17.2%.

The gross margin strengthened from 62.3% of revenue to 65.2%, a sign that Meredith sold its output and services at more profitable prices relative to production costs. Sales, general, and administrative expenses decreased from 45.6% to 44.9% of quarterly revenue, which shows the company spent less per dollar of sales on other operational costs, such as marketing.

Meredith's operating activities generated $79 million in cash during the last quarter, up  compared to ($14) million in the year-earlier period.  Notable uses for cash included $0 million to buy back the company's common shares, and $9 million to acquire property, plant and capital equipment. 

Free cash flow over the last 12 months totaled $350 million, or $7.61 per share using the latest share count. At the current market price per share of $13.64, this translates into a very attractive Free Cash Flow Yield of 55.8%.

The accompanying charts illustrate several trends in Meredith's financial results, taken from data in regulatory filings. The text and the charts are intended to provide some limited historical context for readers interested in the company’s finances. No investment advice is provided, and no investment offer of any kind is made or solicited. The accuracy of the information presented is not guaranteed, and readers are encouraged to independently verify all data.

#meredith    #mdp    #earnings    #nac_financialanalysis

Caterpillar: Gauge Analysis (updated November 4, 2020)

I have analyzed Caterpillar's financial statements to determine whether the reported figures suggest that the company's shares are a good value and reasonable risk for prudent investors. The way I performed this analysis was inspired by Benjamin Graham's recommendations in "The Intelligent Investor," which was first published in 1949 and is still one of the best-known books about value investing. I modified Graham's specific suggestions to fit modern times; however, the goal is the same: find stocks that are inexpensive relative to the company's strengths and aren't excessively risky.

The analysis evaluates investment suitability by gauging how well the company satisfies seven criteria.  GREEN, YELLOW, and RED grades indicate whether each gauge is fully satisfied, partially satisfied, or not satisfied at all.  An Overall Score between zero and 100, which takes the details of all gauges into account, is also computed.  While the analysis includes both growth and value criteria, the calculation is weighted to favor companies that exhibit good value characteristics over firms that are fast growers but expensive.

An Overall Score of 60 or higher is a good result, and it signifies that the company has enough value-investment appeal to be worth examining in more detail. 

First, a quick review of the company itself.

Caterpillar is a leading manufacturer and servicer of machinery for construction, mining, energy production, and transportation.  The company also has finance subsidiaries that help customers and dealers purchase and lease Caterpillar and certain other products.  Demand for Caterpillar's products tends to vary as economic conditions strengthen and weaken and commodity prices rise and fall.

Caterpillar recorded profits of $3 billion on revenue of $44 billion during the last year. In the quarter that ended on 30 September 2020, Caterpillar earned $1.34 per share (excluding certain items), which significantly beat the $1.17 Wall Street consensus forecast. See https://tinyurl.com/y383pnzo for Caterpillar's most recent quarterly report.

Shares of Caterpillar now trade for about $157 each.  These shares can be found in the Dow Jones Industrial Average, Standard and Poors 500, Standard and Poors 100, Standard and Poors Dividend Aristocrats, New York Stock Exchange Composite, and Russell 1000 stock indices.

Analysis Results:

Caterpillar's grades on the seven investment criteria are listed below, along with some of the financial figures that influenced these color assignments

1. The Company's Size is Substantial: GREEN

    Market Value: $85.6 billion (large cap)

2. The Company is Conservatively Financed: RED

    Current ratio = 1.5 (>2.0 is conservative)

    Long-term debt/Working Capital = 193% (<150% is conservative)

3. The Company Generates Stable Earnings: RED

    Seventeen positive quarterly earnings reports in last 5 years (worrisome)

    Earnings variability = 23% (moderate)

4. The Company Exhibits Earnings Growth: GREEN

    Owner Earnings growth rate (trailing year) = -37% (poor)

    Owner Earnings growth rate (five-year average) = 39% (very good)

    Free Cash Flow growth rate (trailing year) = 12% (good)

    Free Cash Flow growth rate (five-year average) = 10% (good)

5. The Company is Efficiently Profitable: YELLOW

    Cash Flow Return On Invested Capital = 13% (decent)

    Operating Profit/Sales = 16.3% (very good)

6. The Company Pays a Healthy Dividend: GREEN

    Dividends paid for the last 7 years or longer

    Dividend 5-year average growth rate = 8% (fair)

    Dividend = 52% of last year's FCF (sustainable)

7. The Company's Shares are Fairly Valued: RED

    Price/Owner Earnings (last year) = 17.6 (moderate to pricey)

    Price/GAAP Earnings (five-year average) = 30.2 (expensive)

    Free Cash Flow/Market Value = 5.1% (modest, about the same as the five-year average of 5.3%)

    Acquirer's Multiple = 16.1 (expensive)

    Price/Book Value = 5.7 (more expensive than the five-year average of 4.7)

    Price/Sales = 2.0 (more expensive than the five-year average of 1.5)

In summary, the analysis assigned Caterpillar three GREEN, one YELLOW, and three RED grades.  The resulting Overall Score is 38 of the 100 possible points, which is unappealing.  The score is below the 60-point threshold, and, therefore, Caterpillar does not qualify at this time for consideration by value investors.

Check back here occasionally for updates to the Overall Score, which can change when the company releases new financial results and when there's a significant change in the company's share price.

This analysis reported here is not, by any means, a complete evaluation of the subject company, and it does not consider all material facts about the company's operations, finances, or future prospects. The analysis relies on publicly available financial data assumed, but not guaranteed, to be accurate. Readers are encouraged to independently verify all data. Other analytical approaches and screening criteria will be more applicable to investors having different goals, circumstances, and tolerance for investment risk.  The analysis is not and should not be considered investment advice, nor does it constitute an offer or solicitation to buy or sell any security. The author might have a long or short position in the subject company and/or its competitors. The methodology and results are subject to change without notification.

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 #caterpillar    #cat    #valueinvesting    #nac_financialanalysis

Verizon Communications: Gauge Analysis (updated November 3, 2020)

I have analyzed Verizon's financial statements to determine whether the reported figures suggest that the company's shares are a good value and reasonable risk for prudent investors. The way I performed this analysis was inspired by Benjamin Graham's recommendations in "The Intelligent Investor," which was first published in 1949 and is still one of the best-known books about value investing. I modified Graham's specific suggestions to fit modern times; however, the goal is the same: find stocks that are inexpensive relative to the company's strengths and aren't excessively risky.

The analysis evaluates investment suitability by gauging how well the company satisfies seven criteria.  GREEN, YELLOW, and RED grades indicate whether each gauge is fully satisfied, partially satisfied, or not satisfied at all.  An Overall Score between zero and 100, which takes the details of all gauges into account, is also computed.  While the analysis includes both growth and value criteria, the calculation is weighted to favor companies that exhibit good value characteristics over firms that are fast growers but expensive.

An Overall Score of 60 or higher is a good result, and it signifies that the company has enough value-investment appeal to be worth examining in more detail.

First, a quick review of the company itself.

Verizon Communications is major provider of wired and wireless voice and data communications services to U.S. businesses and residential consumers. The company is now rolling out new services based on the latest 5G technology.  In September 2020, Verizon announced it would acquire Tracfone, the leading pre-paid and value mobile service provider in the U.S.

Verizon recorded profits of $18 billion on revenue of $128 billion during the last year. In the quarter that ended on 30 September 2020, Verizon earned $1.25 per share (excluding certain items), which beat the $1.22 Wall Street consensus forecast. See https://tinyurl.com/y5ej5n6w for Verizon's most recent quarterly report.

Shares of Verizon now trade for about $58 each.  These shares can be found in the Dow Jones Industrial Average, Standard and Poors 500, Standard and Poors 100, New York Stock Exchange Composite, and Russell 1000 stock indices.

Analysis Results:

Verizon's grades on the seven investment criteria are listed below, along with some of the financial figures that influenced these color assignments

1. The Company's Size is Substantial: GREEN

    Market Value: $239.2 billion (mega-cap)

2. The Company is Conservatively Financed: RED

    Current ratio = 1.1 (>2.0 is conservative)

    Long-term debt/Working Capital = 4599% (<150% is conservative)

3. The Company Generates Stable Earnings: YELLOW

    Twenty positive quarterly earnings reports in last 5 years (perfect)

    Earnings variability = 29% (high)

4. The Company Exhibits Earnings Growth: GREEN

    Owner Earnings growth rate (trailing year) = 48% (terrific)

    Owner Earnings growth rate (five-year average) = 17% (good)

    Free Cash Flow growth rate (trailing year) = 21% (very good)

    Free Cash Flow growth rate (five-year average) = 30% (very good)

5. The Company is Efficiently Profitable: GREEN

    Cash Flow Return On Invested Capital = 24% (good)

    Operating Profit/Sales = 22.2% (excellent)

6. The Company Pays a Healthy Dividend: GREEN

    Dividends paid for the last 7 years or longer

    Dividend 5-year average growth rate = 2.2% (weak)

    Dividend = 47% of last year's FCF (sustainable)

7. The Company's Shares are Fairly Valued: GREEN

    Price/Owner Earnings (last year) = 9.3 (appealing)

    Price/GAAP Earnings (five-year average) = 12.3 (appealing)

    Free Cash Flow/Market Value = 9.1% (very appealing), more than the five-year average of 6.3%)

    Acquirer's Multiple = 12.2 (reasonable)

    Price/Book Value = 3.6 (less expensive than the five-year average of 6.1)

    Price/Sales = 1.9 (more expensive than the five-year average of 1.7)

In summary, the analysis assigned Verizon Communications five GREEN, one YELLOW, and one RED grades.  The resulting Overall Score is 70 of the 100 possible points, which is an excellent result.  The score is above the 60-point threshold, and, therefore, Verizon merits consideration by value investors.

Check back here occasionally for updates to the Overall Score, which can change when the company releases new financial results and when there's a significant change in the company's share price.

This analysis reported here is not, by any means, a complete evaluation of the subject company, and it does not consider all material facts about the company's operations, finances, or future prospects. The analysis relies on publicly available financial data assumed, but not guaranteed, to be accurate. Readers are encouraged to independently verify all data. Other analytical approaches and screening criteria will be more applicable to investors having different goals, circumstances, and tolerance for investment risk.  The analysis is not and should not be considered investment advice, nor does it constitute an offer or solicitation to buy or sell any security. The author might have a long or short position in the subject company and/or its competitors. The methodology and results are subject to change without notification.

---------------

 #verizon    #vz    #valueinvesting    #nac_financialanalysis

ConocoPhillips: Earnings Report for the Quarter Ending September 30, 2020

ConocoPhillips reported (https://tinyurl.com/y5m9cbjq) before the market opened on 29 October 2020 it lost $0.42 per diluted share in the quarter that ended on 30 September 2020, down from earnings of $2.75 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP). 

ConocoPhillips is the biggest U.S.-based firm focused solely on energy exploration and production. It assumed its current name when it merged with Phillips Petroleum in 2002.  A decade later, the midstream and downstream assets were spun off as "Phillips 66." ConocoPhillips, like many in the industry, is now struggling with low oil and gas prices, which reduce the company's earnings and cash flows. The industry has been consolidating as a result, and ConocoPhillips has been no exception.  ConocoPhillips announced an agreement in October 2020 to acquire Concho Resources, which is a top producer in the Permian basin, in an all-stock transaction worth (when the deal was made) $9.7 billion plus $3.9 billion of debt assumed.

Adjusted earnings, a non-GAAP figure, fell  to ($0.31) per share from $0.82 one year earlier. Adjusted earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits. However, caution is warranted when analyzing these figures because management has considerable leeway in choosing which GAAP-required items to exclude.

The principal exclusions contributing to the $0.11 per share difference in the latest quarter between GAAP earnings and Adjusted earnings were: Pending claims and settlements [($0.06) per share], Unrealized loss on CVE shares [$0.14 per share], and Pension settlement expense [$0.02 per share].

Because ConocoPhillips has repurchased a significant quantity of its own shares, the average number of shares outstanding during the last quarter was 3.2% lower than one year ago. The smaller share count boosted earnings per share by $0.02.

Adjusted earnings of ($0.31) per share in the latest quarter significantly beat the ($0.58) average ("consensus") of estimates made by Wall Street analysts. See https://tinyurl.com/uej9csu for ConocoPhillips's earnings record and forecasts.

Stock market traders reacted positively to ConocoPhillips exceeding expectations. The price of the company's shares rose 1.3% during the trading day following the report.

Looking deeper into the GAAP results, "top-line" revenue in the September 2020 quarter totaled $4.4 billion, 43% less than last year's $7.8 billion. The Crude Oil business was responsible for 53% of overall revenue, and this unit's revenue fell by 49.7% compared to the year-earlier result. The Natural Gas business contributed 34% of revenue, and this unit's revenue fell by 16.1%. The Natural Gas Liquids and Other unit supplied 13% of revenue, and the amount fell by 58.7%.

The gross margin weakened from 47.9% of revenue to 36.1%, a sign that ConocoPhillips sold its output and services at less profitable prices relative to production costs. Sales, general, and administrative expenses increased from 4.2% to 6.3% of quarterly revenue, which shows the company spent more per dollar of sales on other operational costs, such as marketing.

ConocoPhillips's operating activities generated $868 million in cash during the last quarter, down 62.9% from $2.3 billion in the year-earlier period.  Notable uses for cash included $454 million to pay dividends to shareholders,  and $1.1 billion to acquire property, plant and capital equipment. 

Free cash flow over the last 12 months totaled $860 million, or $0.80 per share using the latest share count. At the current market price per share of $29.35, this translates into a modest Free Cash Flow Yield of 2.7%.

The accompanying charts illustrate several trends in ConocoPhillips's financial results, taken from data in regulatory filings. The text and the charts are intended to provide some limited historical context for readers interested in the company’s finances. No investment advice is provided, and no investment offer of any kind is made or solicited. The accuracy of the information presented is not guaranteed, and readers are encouraged to independently verify all data.

#conocophillips    #cop    #earnings    #nac_financialanalysis

CDK's Earnings Report, Quarter Ending September 30, 2020

CDK Global reported (https://tinyurl.com/y5438fzj) after the market closed on 2 November 2020 it earned $0.46 per diluted share in the quarter that ended on 30 September 2020, down 31% percent from earnings of $0.67 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP). 

CDK Global is a leading provider of specialized technology services to automobile dealers and related firms.  The services help dealers with buying, selling, financing, insuring, repairing, and maintaining vehicles.  Automatic Data Processing spun out CDK, a former division, as an independent, publicly traded company in October 2014.  In 2018, CDK Global hired Brian Krzanich, Intel's former boss, as its president and chief executive officer. In September 2018, CDK acquired ELEAD1ONE for $500 million to obtain automotive customer relationship management and call-center tools.  In April 2020, CDK sold its Digital Marketing business to Ansira Partners.

Adjusted earnings, a non-GAAP figure, rose 4% to $0.82 per share from $0.79 one year earlier, a percent change much better than seen with the GAAP figures. Adjusted earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits. However, caution is warranted when analyzing these figures because management has considerable leeway in choosing which GAAP-required items to exclude.

The principal exclusions contributing to the $0.36 per share difference in the latest quarter between GAAP earnings and Adjusted earnings were: Legal and other expenses related to regulatory and competition matters  [$0.11 per share], Stock-based compensation [$0.10 per share], and Restructuring and related costs [$0.16 per share].

Adjusted earnings of $0.82 per share in the latest quarter significantly beat the $0.67 average ("consensus") of estimates made by Wall Street analysts. See https://tinyurl.com/yyvgks8h for CDK's earnings record and forecasts.

Stock market traders did not have much of a reaction to CDK's latest earnings. The price of the company's shares was nearly unchanged.

Looking deeper into the GAAP results, "top-line" revenue in the September 2020 quarter totaled $494 million, about the same as last year. The North America business was responsible for 84% of overall revenue, and this unit's revenue fell by 1.0% compared to the year-earlier result. The International business contributed 16% of revenue, and this unit's revenue grew by 3.9%.

The gross margin weakened from 50.0% of revenue to 46.9%, a sign that CDK sold its output and services at less profitable prices relative to production costs. Sales, general, and administrative expenses increased from 21.8% to 22.7% of quarterly revenue, which shows the company spent more per dollar of sales on other operational costs, such as marketing. The effective income tax rate rose by 6.7% to 31.4%, which had a negative effect on net income.

CDK's operating activities generated $100 million in cash during the last quarter, up 38.1% from $72 million in the year-earlier period. The cash flow delta was, therefore, much better than the change in earnings. Notable uses for cash included $18 million to pay dividends to shareholders,  and $22 million to acquire property, plant and capital equipment. 

Free cash flow over the last 12 months totaled $312 million, or $2.55 per share using the latest share count. At the current market price per share of $44.03, this translates into a decent Free Cash Flow Yield of 5.8%.

The accompanying charts illustrate several trends in CDK Global's financial results, taken from data in regulatory filings. The text and the charts are intended to provide some limited historical context for readers interested in the company’s finances. No investment advice is provided, and no investment offer of any kind is made or solicited. The accuracy of the information presented is not guaranteed, and readers are encouraged to independently verify all data.

#cdk        #earnings    #nac_financialanalysis

Automatic Data Processing: Gauge Analysis for Value Investors (updated 1 November 2020)

I have analyzed ADP's financial statements to determine whether the reported figures suggest that the company's shares are a good value and reasonable risk for prudent investors. The way I performed this analysis was inspired by Benjamin Graham's recommendations in "The Intelligent Investor," which was first published in 1949 and is still one of the best-known books about value investing. I modified Graham's specific suggestions to fit modern times; however, the goal is the same: find stocks that are inexpensive relative to the company's strengths and aren't excessively risky.

"The analysis evaluates investment suitability by gauging how well the company satisfies seven criteria.  GREEN, YELLOW, and RED grades indicate whether each gauge is fully satisfied, partially satisfied, or not satisfied at all.  An Overall Score between zero and 100, which takes the details of all gauges into account, is also computed.  While the analysis includes both growth and value criteria, the calculation is weighted to favor companies that exhibit good value characteristics over firms that are fast growers but expensive.

An Overall Score of 60 or higher is a good result, and it signifies that the company has enough value-investment appeal to be worth examining in more detail. "

First, a quick review of the company itself.

ADP provides "human capital management" and human resource outsourcing services, such as payroll, to numerous firms around the world.  These services are increasingly cloud-based.  The company is also known for the monthly "ADP National Employment Report" showing changes in total U.S. non-farm private employment.  ADP and the activist fund Pershing Square waged an expensive proxy war for control of the company, which ADP's board of directors ultimately won, but Pershing departed with a substantial profit. 

ADP recorded profits of $2 billion on revenue of $15 billion during the last year. In the quarter that ended on 30 September 2020, ADP earned $1.41 per share (excluding certain items), which significantly beat the $0.96 Wall Street consensus forecast. See https://tinyurl.com/y4jsk38m for ADP's most recent quarterly report.

Shares of ADP now trade for about $158 each.  These shares can be found in the Standard and Poors 500, Standard and Poors Dividend Aristocrats, NASDAQ 100, and Russell 1000 stock indices.

Analysis Results:

ADP's grades on the seven investment criteria are listed below, along with some of the financial figures that influenced these color assignments

1. The Company's Size is Substantial: GREEN

    Market Value: $67.9 billion (large cap)

2. The Company is Conservatively Financed: RED

    Current ratio = 1.5 (>2.0 is conservative)

    Long-term debt/Working Capital = 122% (<150% is conservative)

3. The Company Generates Stable Earnings: GREEN

    Twenty positive quarterly earnings reports in last 5 years (perfect)

    Earnings variability = N/A (negligible)

4. The Company Exhibits Earnings Growth: GREEN

    Owner Earnings growth rate (trailing year) = 6% (modest)

    Owner Earnings growth rate (five-year average) = 23% (very good)

    Free Cash Flow growth rate (trailing year) = 4% (weak)

    Free Cash Flow growth rate (five-year average) = 13% (good)

5. The Company is Efficiently Profitable: GREEN

    Cash Flow Return On Invested Capital = 33% (very good)

    Operating Profit/Sales = 21.8% (excellent)

6. The Company Pays a Healthy Dividend: GREEN

    Dividends paid for the last 7 years or longer

    Dividend 5-year average growth rate = 15% (very good)

    Dividend = 54% of last year's FCF (sustainable)

7. The Company's Shares are Fairly Valued: RED

    Price/Owner Earnings (last year) = 17.6 (moderate to pricey)

    Price/GAAP Earnings (five-year average) = 34.3 (expensive)

    Free Cash Flow/Market Value = 4.3% (modest, more than the five-year average of 4.1%)

    Acquirer's Multiple = 21.5 (expensive)

    Price/Book Value = 11.7 (about the same as its five-year average)

    Price/Sales = 4.7 (more expensive than the five-year average of 4.2)

In summary, the analysis assigned Automatic Data Processing five GREEN, zero YELLOW, and two RED grades.  The resulting Overall Score is 49 of the 100 possible points, which is unappealing.  The score is below the 60-point threshold, and, therefore, ADP does not qualify at this time for consideration by value investors.

Check back here occasionally for updates to the Overall Score, which can change when the company releases new financial results and when there's a signifcant change in the company's share price.

This analysis reported here is not, by any means, a complete evaluation of the subject company, and it does not consider all material facts about the company's operations, finances, or future prospects. The analysis relies on publicly available financial data assumed, but not guaranteed, to be accurate. Readers are encouraged to independently verify all data. Other analytical approaches and screening criteria will be more applicable to investors having different goals, circumstances, and tolerance for investment risk.  The analysis is not and should not be considered investment advice, nor does it constitute an offer or solicitation to buy or sell any security. The author might have a long or short position in the subject company and/or its competitors. The methodology and results are subject to change without notification.

---------------

 #adp        #valueinvesting    #nac_financialanalysis