Bill Ackman (Trades, Portfolio), founder of Pershing Square, invested in 36,803,675 shares of Automatic Data Processing Inc. (ADP, Financial) for $105.98 per share on July 26 according to GuruFocus real-time picks.
Brief discussion of the transaction
Ackman’s Pershing Square announced on Aug. 4 it acquired 8.28% of ADP’s total shares outstanding as the management firm sees “enormous opportunity to improve the operating performance of ADP” according to the press release. Pershing Square cited several ways to accelerate the business solutions company’s growth, including higher software and service quality, lower operating costs and higher overall efficiency.
Pershing Square nominated three directors to ADP’s board on Aug. 7, including Ackman, Veronica Hagen and V. Paul Unruh. Ackman said in the press release Pershing Square is pleased to nominate “superb independent directors” that will bring the relevant knowledge and skills to “assist the board in achieving ADP’s maximum potential.”
Company offers good outlook for fiscal 2018
ADP offers good growth potential for the rest of the year even though the company expects fiscal 2018 diluted earnings to drop between 1% and 3% from fiscal 2017 earnings. The New Jersey-based business services company’s profitability ranks a solid 8 with a GuruFocus business predictability rank of four stars.
ADP has strong margins and returns: the company’s operating margin outperforms 86% of global competitors while the return on equity is near a 10-year high of 42.02%. The company expects fiscal 2018 revenues to grow between 5% and 6%, based on the forecasted worldwide new business bookings growth of 5% to 7% from fiscal 2017. The expected revenue growth in fiscal 2018 would positively contribute to ADP’s three-year revenue growth, which outperforms 69% of global competitors as of Aug. 8.
Disclosure: The writer has no positions in ADP.