Wall Street expects earnings growth
Automatic Data Processing (ADP), which reports its results for the quarter ending December 2022, is expected to report a year-overyear increase in earnings and higher revenues. The consensus outlook is well-known and provides a clear picture of the company’s earnings. However, how actual results compare with these estimates could have a significant impact on the stock’s near-term price.
If these key numbers are higher than expected, the earnings report will be published on January 25, 2023. The stock could move lower if the key numbers are not met.
Although the sustainability of the immediate price rise and future earnings expectations will depend on management’s discussions of business conditions during the earnings call, it is worth taking into account the possibility of a positive surprise in EPS.
Zacks Consensus Estimate
The company’s next quarterly earnings are expected to be $1.94 per share. This is a +17.6% increase year-overyear.
Revenues are expected at $4.38 Billion, an 8.7% increase over the previous quarter.
Trend for Estimated Revisions
Over the last 30 day, the consensus EPS estimate for this quarter was revised 0.52% lower to the current level. This is basically a reflection on how the covering analysts collectively reassessed initial estimates during this period.
Investors should remember that an aggregate change might not always reflect the direction in which each of the covering analysts revised their estimates.
Earnings Whisper
The estimates that are made ahead of an earnings release by a company can give clues about the business environment for the period. This insight lies at the heart of our surprise prediction model, Zacks earnings ESP (Expected Surprising Prediction).
The Zacks Earnings ESP compares most accurate estimates to the Zacks Consensus Estimate. For the quarter, the Most Accurate Estimate uses a newer version of the Zacks Consensus EPS estimate. This is because analysts who revise their estimates before earnings releases have the most recent information. It could be that this information may be more accurate than what others contributed to the consensus.
A positive or negative Earnings ESP reading can theoretically indicate the likelihood of earnings that are different from the consensus estimate. The model’s predictive power for positive ESP readings is however limited.
When combined with a Zacks Rank #1, 2 or 3 (Buy), a positive Earnings ESP can be a strong predictor for an earnings beat. This combination produces a positive surprise almost 70% of the times. A solid Zacks Rank increases the predictive power for Earnings ESP.
Note that a negative Earnings ESP reading doesn’t necessarily mean an earnings miss. Research shows it is hard to predict earnings beats for stocks with negative Earnings-ESP readings or Zacks rank of 4 (Sell), 5 (Strong Sell).
What are the numbers for ADP?
ADP’s Most Accurate Estimate for earnings is higher than Zacks Consensus Estimate. This indicates that analysts are more bullish on ADP’s prospects. This has translated into an Earnings Estimate ESP of +0.29%.
The stock, on the other hand has a Zacks Rank #4.
This combination makes ADP difficult to predict if it will beat consensus EPS estimates.
Is Earnings History a Surprise?
Analysts look at how a company was able to meet consensus estimates in the past when calculating future earnings estimates. For gauging the influence of the past surprise history on the future number, it is worth looking.
ADP was expected to post earnings of $1.78 per shares for the most recent quarter. However, earnings actually came in at $1.86. This surprise resulted in a +4.49% increase.
The company beat consensus EPS estimates 4 times in the past four quarters.
Bottom Line
Stocks can move higher or down despite an earnings miss or beat. Stocks can lose ground even if earnings beats are achieved. This is because investors may be disappointed by other factors. Unexpected catalysts are another reason why some stocks can gain despite a disappointing earnings report.
However, it is possible to increase your chances of success by betting on stocks that exceed earnings expectations. It is worth looking at a company’s Earnings ESP or Zacks Rank before its quarterly report. Our Earnings ESP Filter will help you find the best stocks to purchase or sell before they report.
ADP does NOT appear to be an attractive candidate for earnings beats. Investors should be aware of other factors before betting on ADP stock or staying away from this stock ahead of its earnings release.
Keep up-to-date with future earnings announcements using the Zacks Earnings Calendar.
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Automatic Data Processing, Inc. (ADP) : Free Stock Analysis Report