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Everything You Need To Know About The ADP Drama

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Everything You Need To Know About The ADP Drama

Activist hedge fund manager Bill Ackman once again finds himself in a battle with some of Wall Street’s heavy hitters. Ackman’s Pershing Square recently took an 8 percent ownership stake in Automatic Data Processing (NASDAQ: ADP) and nominated three directors to join ADP’s board.

On Thursday, Ackman revealed his turnaround strategy for ADP in a public conference call. Ackman proposed expanding margins in the company’s Employer Services segment, as well as cutting corporate expenses. Ackman’s suggestions were not well-received by the company.

“We strongly disagree with many of the assertions made by Mr. Ackman in today’s presentation, which betrays a fundamental lack of understanding of the current state of ADP’s business and strategy,” the company said in a statement.

Well-known short seller Robert Chapman said on Thursday he had taken a significant short position in ADP. Chapman once publicly criticized Ackman regarding his famous $1 billion short bet against Herbalife Ltd. (NYSE: HLF).

“Making a dollar being short an Ackman stock feels as good as making $10 on one that he’s not long,” Chapman said on CNBC.

Related Link: Questions Arise From Herbalife's Earnings, Conference Call

Deutsche Bank analyst Bryan Keane opted not to take a side on ADP, noting that Ackman’s presentation contained no major surprises.

“We believe the weakness and risks in ES were well known (investors looking for new ideas for improvements didn't get it) and see a difficult path to a quick turnaround,” Keane wrote on Thursday.

While ADP could potentially take measures to improve Employer Services margins as a result of pressure from Ackman, Keane said these efforts may be offset by the potential for the Ackman circus to negatively impact bookings. Competitors may attempt to take advantage of the fact that potential clients see ADP management as distracted by potential proxy fights.

Deutsche Bank maintains a Hold rating and $102 price target for ADP.

Latest Ratings for ADP

DateFirmActionFromTo
Nov 2020Credit SuisseMaintainsOutperform
Oct 2020BMO CapitalMaintainsMarket Perform
Oct 2020Morgan StanleyMaintainsEqual-Weight

View More Analyst Ratings for ADP
View the Latest Analyst Ratings

 

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Latest Ratings

StockFirmActionPT
HYMCBMO CapitalInitiates Coverage On
DEMorgan StanleyMaintains335.0
SBNYRaymond JamesMaintains138.0
CORTHC Wainwright & Co.Maintains32.0
CYBBFCitigroupDowngrades
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