Adp Security Evaluation Essay Research Paper Valuation — страница 3

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dividends and the projected price back to the present ? sum these present values to find the current value of the stock. Dividend Growth Rate From Value Line 1999 Dividend Declared $ 0.30 2002 Estimated Dividend $ 0.45 with a financial calculator, PV -0.30 FV 0.45 N 3 I/YR 14.47% estimated dividend growth rate Estimated Dividends: 1999 $0.30 2000 $0.3435 (0.30 x 1.1447) 2001 $0.3933 (0.3435 x 1.1447) 2002 $0.45 Value of Common Stock Based on the calculation steps described above, I have determined the present value price of ADP?s stock to be $26.69. This is lower than the NYSE closing price $39.375 on Friday, March 26, 1999 as reported by the Wall Street Journal. The estimated price of the stock at the end of the supernormal growth period is $39.90, calculated as the Earnings per

Share of $1.90 times the Price Earning Ratio of 21.0. Using a financial calculator, discount each expected FV dividend to the present using the required rate of return. The sum of these present values, and the PV of the estimated value of the stock at the end of the supernormal dividend growth period is the current stock price. 1999 2000 2001 2002 FV .30 .3435 .3933 .45 + 39.90 N 1 2 3 4 I/YR 11.755 11.755 11.755 11.755 PV .268 .275 .282 25.869 $26.69 This difference between my price of $26.69 and the NYSE closing price of $39.375 on March 26, 1999 is most likely related to investor expectations about the future of the stock compared to the projected figures reported in ValueLine. The stock is selling for a premium, in essence, which indicates that investors feel the expected

return and benefits of holding ADP stock are greater than available in other securities available. With the turn of the century rapidly approaching, investors may be looking for stocks with proven track records. (Over 37 years of double-digit earnings per share growth isn?t too shabby!) In February of this year ADP sold Peachtree Software, an accounting software package for small business, to Sage Software, Inc. This sale of close to $145 million dollars occurred after the ValueLine publication I used in this security analysis. This sale could very well have caused the current trading price of ADP stock to rise well above the price I calculated. Sensitivity Analysis Slight changes in either the stock?s beta or the risk free rate make only small changes in the stock?s price. If

the 30-year Treasury bond rate were 6.5%, the stock?s cost of capital changes to 12.675% and the price of the stock falls to $25.84. If we raise ADP?s beta to just over the market level to 1.05 the price of the stock becomes $26.09. With proven management and earnings records, ADP, Inc. is a wise investment. Despite changes in the market and the U.S. and world economy, ADP has maintained positive growth over more than a quarter of a century. Their market share in the data processing and integrated payroll services industry is unmatched. They have mastered the business of human resources and personnel administration services and it is paying off. Approximately 57% of company revenues come from this division. ADP?s diversification into brokerage services and dealer and claim

services helps to stabilize any market and corporate fluctuations. Business Wire. ?ADP Earns Top Honors From Fortune Magazine.? February 16, 1999. Dowling, Debra. ?Roseland, N.J., Company Envy of Wall Street.? Knight-Ridder/Tribune Business News, July 12, 1996 p7120344 Rasmusson, Erika. ?ADP (Automatic Data Processing Inc.?s Sales Strategies.? Sales & Marketing Management, Oct 1997 v149 n10 p54(1). ValueLine. 1999. VARBusiness. ?The Top 100 Stocks ? Best of Publicly Traded Firms Among the VAR 500, Distribution 50 and retailers.? September 14, 1998. Wernle, Bradford. ?Manheim, ADP Team Up On Used Cars.? Automotive News, Sept. 22, 1997 n5732 p50(1). Bibliography Business Wire. ?ADP Earns Top Honors From Fortune Magazine.? February 16, 1999. Dowling, Debra. ?Roseland, N.J.,

Company Envy of Wall Street.? Knight-Ridder/Tribune Business News, July 12, 1996 p7120344 Rasmusson, Erika. ?ADP (Automatic Data Processing Inc.?s Sales Strategies.? Sales & Marketing Management, Oct 1997 v149 n10 p54(1). ValueLine. 1999. VARBusiness. ?The Top 100 Stocks ? Best of Publicly Traded Firms Among the VAR 500, Distribution 50 and retailers.? September 14, 1998. Wernle, Bradford. ?Manheim, ADP Team Up On Used Cars.? Automotive News, Sept. 22, 1997 n5732 p50(1).