Automatic Data Processing
Automatic Data Processing (ADP) is another key holding of Bill Ackman’s Pershing Square. Pershing lost a proxy battle with ADP in 2017. Ackman was asking for three seats on the company’s ten-member board but failed to get any.
Ackman has vowed that he supports ADP but that he might be back if ADP fails to perform.
ADP drives Pershing Square’s returns
ADP has been transforming its business, which is working for its stock. In its most recent results, the company exceeded its revenue and earnings guidance. It also upgraded its earnings guidance for its fiscal year ending in June 2019. After rising 14% in 2018, the stock has risen 14% year-to-date, outperforming the S&P 500 Index (SPY) and the NASDAQ Composite Index (QQQ). ADP buoyed Pershing’s gross returns by 5.5% in 2018.
The average price of ADP for Pershing Square was $105 compared to its current level of $150, implying an increase of 43%.
Pershing Square believes in the potential of ADP, which it expects to drive shareholder value. In its latest shareholder letter, it stated that ADP was trading at 24x its earnings, a discount to its historical valuation. This discount is still present despite its “improved organic growth and accelerated EPS growth.”