Andrew Hill Investment Advisors, Inc. on Automatic Data Processing, Inc.
Thesis
ADP combines predictable recurring revenue from payroll and human-resources software with an additional earnings stream from client payroll balances. The fund notes that the shares were caught in the broader software selloff despite the durability of the business. As software sentiment improved, ADP participated in the recovery. Elevated interest rates also increase the interest income ADP earns while temporarily holding client funds, a benefit the fund believes the market underappreciates.
“the market continues to underappreciate this unique combination of deeply integrated software and interest income potential.”
Key risks
- A renewed software-sector selloff could pressure the shares.
- Lower interest rates would reduce the current interest-income tailwind from client payroll funds.