Low Jobs Growth Could Wreck Payroll and Service Providers in 2014

The economy is continuing to add jobs, the ADP National Employment Index said Wednesday, just not a lot of them.

The index, generated by data from Automated Data Processing Inc. (NASDAQ: ADP), said private employers added 175,000 jobs in January, down from 227,000 in December and 289,000 in November. While it was in line with the Wall Street estimate, the index suggests 2014 job growth will continue to be modest, if steady.

The report also hints that ADP and others in payroll processing and the uniforms business might be looking at a so-so year as well, and shares of ADP and Paychex Inc. (NASDAQ: PAYX) were lower. Shares of uniform supplier Cintas Corp. (NASDAQ: CTAS) were holding their own. Here is a look at the three companies.


ADP reported fiscal second quarter earnings of $0.78 on Wednesday, a penny better than expected. The company said hiring was fairly strong in November in particular. It sees 7% to 8% revenue growth for 2014, a touch better than earlier guidance of 7% growth. But the stock was off $1.35, or 1.8%, to $73.60 Wednesday. The consensus estimate for the second quarter is $1.08 a share, up from $0.99 a year ago. Revenue is seen rising 7.2% to $3.34 billion. The consensus price target on the stock is $80.50.


Paychex shares were down 19 cents, or 0.5%, to $40.64 in Wednesday trading. Analysts expect fiscal third-quarter earnings of $0.42 per share, up 5% from $0.40 a year ago. Revenue is seen rising 5.9% to $628.6 million. Like ADP, Paychex is a big player in payroll processing. Its SurePayroll Small Business Scorecard suggested half of small businesses feel comfortable enough to hire new employees. The current price target is $41.63.


Cintas is expected to earn $0.69 per share its fiscal third quarter, up from $0.60 a year ago. Revenue is seen growing 5.5% to $1.1 billion. The company has said its customers are being cautious about hiring. The stock was up 26 cents to $56.18. The current price target is $60.22, up 7% from current levels.

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