We think some of the margin difference between ADP and peers is structural, and we dont see easy fixes for some of the issues Pershing Square identified. We see the moat trend at ADP as clearly negative and view the stock as significantly overvalued.
We see some short-run improvements on the horizon as ADP improves technology and reduces its physical footprint, but increasing competition and a more sophisticated customer base will leave the company unable to approach Paychexs levels of profitability. We therefore dont expect ADP to improve margins to the levels either Pershing Square or management suggests.
We believe ADPs operational margins will expand by 200 basis points and contract thereafter, in contrast to managements three-…
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