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Linked here is a detailed quantitative analysis of Automatic Data Processing Inc. (ADP). Below are some highlights from the above linked analysis:

Company Description: Automatic Data Processing Inc., one of the world's largest independent computing services companies, provides a broad range of data processing services.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

ADP is trading at a premium to all four valuations above. When also considering the NPV MMA Differential, the stock is trading at a slight discount to its calculated fair value of $308.42. ADP earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section, there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

ADP earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45% ADP earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1974 and has increased its dividend payments for 49 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

ADP earned a Star in this section for its NPV MMA Diff. of $635 This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as ADP has. If ADP grows its dividend at 11.5% per year, it will take 8 years to equal a MMA yielding an estimated 20-year average rate of 3.75%.

Peers: The company's peer group includes: Paychex, Inc. (PAYX) with a 2.9% yield and Insperity, Inc. (NSP) with a 3.5% yield.

Conclusion: ADP earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks ADP as a 5-Star Very Strong stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $328.82 before ADP's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 49 years of consecutive dividend increases. At that price the stock would yield 1.8%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 10.8%. This dividend growth rate is below the 11.5% used in this analysis, thus providing a margin of safety. ADP has a risk rating of 1.00 which classifies it as a Low risk stock.

As the industry leader ADP enjoys advantages of scale, a respected brand and protected by high customer switching costs. Financially, the company has a good balance sheet, with a debt to total capital of 42% (flat with prior), which is below my desired maximum of 45%, and a recurring revenue stream generating steady cash flows. Its free cash flow payout of 56% (down from 63%) is below my maximum of 60%. The stock is trading below its calculated fair value of $308.42.

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