On the Line: Automatic Data Processing CEO Gary Butler
Few companies are as consistent in their earnings and their cash flow and their story as is Automatic Data Processing, Cramer says.
The company just spun off its brokerage business, a $2 billion subsidiary that’s now a standalone equity, leaving ADP with a huge amount of cash. It’s also allowed ADP to streamline operations a bit to boot.
“That leaves us with a much faster growth business that is very focused,” President and CEO Gary Butler told Cramer today, “which we think will give us a tremendous return on management.”
The CEO said that ADP operates in a huge market with $80 billion of opportunity both in the U.S. and globally in employer services.
But why won’t ADP consider going private like First Data or Alliance Data Systems Cramer wanted to know.
“I’m into returning value to shareholders, and particularly long-term shareholders,” Butler said. “I don’t think we should manage ADP to return value to private equity firms.”
Butler said that ADP is growing earnings per share at fantastic rates and is trading at a 25 PE multiple. So if he can continue to grow share price, that means delivering more long-term value for shareholders if he stays the course.
And don’t pay any attention to a recent report from Bernstein, which mentioned ADP could spin off its dealer services business. Butler expects that business will grow faster than its employer services business this year, though it will be aided by acquisitions.
“I actually believe it has better growth prospects than our employer services business,” Butler said, “and so why would you discard a winner.”
“This is a company that I think represents the best service company in this country,” Cramer said. “I would buy it without any equivocation.”
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