ADP Automatic Data Processing Inc

For Immediate Release

Chicago, IL – January 18, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Wells Fargo & Company ( WFC), JPMorgan Chase & Co. ( JPM), Goldman Sachs Group Inc. ( GS), Bank of America Corporation ( BAC) and Automatic Data Processing Inc. ( ADP).

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Here are highlights from Tuesday’s Analyst Blog:

Wells Fargo Beats by a Penny

Wells Fargo & Company’s ( WFC) fourth quarter 2011 earnings of 73 cents per share were a penny ahead of the Zacks Consensus Estimate. Results improved from earnings of 72 cents in the prior quarter and 61 cents in the year-ago quarter.

Wells Fargo’s results were driven by higher top line, and improved credit quality along with strong capital ratios were positives during the reported quarter. However, increased operating expenses were on the downside.

Wells Fargo’s fourth quarter net income applicable to common stock came in at $4.1 billion, modestly in line with the prior quarter and up from $3.4 billion in the prior-year quarter.

For the full year, net income applicable to common stock was $15.9 billion or $2.82 per share, up 28% year over year. Earnings per share for full year also surpassed the Zacks Consensus Estimate by a penny.

The quarter’s revenue came in at $20.6 billion, which was above the Zacks Consensus Estimate of $20.1 billion and up 5.1% sequentially. On a sequential basis, Wells Fargo’s commercial real estate, credit card, commercial banking, corporate banking, equipment finance, merchant services, insurance, international, capital markets, asset-backed finance, corporate trust, mortgage, asset management, government and institutional banking and real estate capital markets and retail sales finance reported revenue growth.

For the full year, revenue was $81.0 billion, down 4.9% from $85.2 billion in 2010. However, this compares favorably with the Zacks Consensus Estimate of $80.5 billion.

Furthermore, segment wise, on a sequential basis, Wholesale Banking reported a 9.5% drop in revenues while the Community Banking and Wealth, Brokerage and Retirement segments reported rises of 8.1% and 11.7%, respectively.

Wells Fargo reported a reserve release of $600 million (pre tax), attributable to improved portfolio performance. The company also expects future reductions in the allowance should the economy improve significantly.

Performance in Detail

Net interest income for the quarter came in at $10.9 billion, up 3.8% from the prior quarter, primarily due to growth in earning assets and an elevated net interest margin. Additionally, net interest margin climbed 5 basis points (bps) sequentially to 3.89% as a result of redistribution of short-term investments into higher-yielding assets such as securities and loans, lower deposit costs and decreased long-term debt.

Wells Fargo’s non-interest income came in at $9.7 billion, up 6.6% from $9.1 million recorded in the prior quarter. The sequential increase in insurance fees, mortgage banking income as well as net gains from trading activities were partly mitigated by decline in service charges on deposit accounts, card fees, trust and investment fees, and net gains from equity investments.

As of December 31, 2011, total loans were $769.6 billion, up $9.5 billion from $760.1 billion as of September 30, 2011. While the company continued with its planned reduction in the non-strategic/liquidating portfolios, it was more than offset by increased balances in many loan portfolios. Average core deposits were $864.9 billion, up 13% (annualized) from third quarter 2011 and 9% from a year ago.

However, non-interest expense at Wells Fargo was $12.5 billion, up 6.8% from the prior quarter. The rise in expenses reflects increased expenses on commission and incentive compensation, net occupancy, employee benefits and equipment. However, the increase was partially offset by lower salaries, operating losses as well as FDIC and other assessment expenses.

Credit Quality

Credit quality continued to improve during the reported quarter. Nonperforming assets (NPAs) continued to decline with Wells Fargo reporting NPAs of $26.0 billion, down 3% sequentially. Non-accrual loans decreased to $21.3 billion from $21.9 billion in the prior quarter.

Wells Fargo’s allowance for credit losses, including the allowance for unfunded commitments, totaled $19.7 billion as of December 31, 2011, down from $20.4 billion as of September 30, 2011.

Net charge-offs were $2.6 billion or annualized 1.36% of average loans, modestly flat with the prior quarter. However, provision for credit losses increased to $2.0 billion from $1.8 billion in the prior quarter.

As of November 30, 2011, around 724,710 active trial or completed loan modifications had been initiated since the beginning of 2009. Of this total, 84% were through Wells Fargo’s own modification programs and the remainder was through the federal government’s Home Affordable Modification Program (HAMP).

Capital Position

Wells Fargo reported improved capital ratios in the fourth quarter. The company redeemed $5.8 billion of trust preferred securities and repurchased 27 million shares of its common stock and an additional estimated 6 million shares through a forward repurchase transaction that will settle in first quarter of 2012.

The Tier 1 leverage ratio was 9.03% as of December 31, 2011, up from 8.97% as of September 30, 2011. The Tier 1 common equity ratio was an estimated 7.49% as of December 31, 2011 under the Basel III capital proposals. Tier 1 capital ratio was 11.33% as of December 31, 2011 compared with 11.26% as of September 30, 2011.

Moreover, book value per share improved to $24.64 from $24.13 in the prior quarter and $22.49 in the prior-year quarter.

Wachovia Integration Update

Wells Fargo’s Wachovia merger integration remained on track with the company finally completing the conversion of retail bank store (North Carolina integration in mid-October 2011). Over 50 million accounts were converted.

Peer Performance

However, one of the peers of Wells Fargo, JPMorgan Chase & Co.’s ( JPM) fourth quarter earnings per share of 90 cents marginally missed the Zacks Consensus Estimate of 92 cents. Results were worse than $1.12 earned in the prior-year quarter.

Results for the reported quarter were primarily hurt by a substantial decrease in revenue, which more than offset a slowdown in provision for credit losses and lower non-interest expense. After a long time, JPMorgan missed expectations as it buckled under the weakness in the wider economy and the fundamental pressures on the banking sector.

Close on the heels of Wells Fargo, the other major banks, namely Goldman Sachs Group Inc. ( GS) will report on January 18 and Bank of America Corporation ( BAC) on January 19.

Our Take

In December 2011, Wells Fargo agreed to purchase investment boutique firm EverKey Global Partners, in an effort to broaden its investment capabilities and provide strategies to meet the needs of its clients. The two companies have signed a definitive agreement in this context. However, the terms of the deal were not disclosed.

The acquisition of EverKey serves a strategic fit for Wells Fargo for offering a greater range of investment strategies to its clients and deliver value to investors. It also reflects its focus on the multi-boutique business model.

Going forward, we believe that strategic acquisitions will help expand Wells Fargo’s business and improve its profitability. Its solid business model, strong capital position and expanded business through the Wachovia acquisition and its integration, expected expense management and improved credit quality will also support its profit figures. Yet, a sluggish economic recovery and its impact on revenue might somewhat limit its growth.

Wells Fargo currently retains a Zacks #3 Rank, which translates into a short-term Hold’ rating. Considering the fundamentals, we also maintain a “Neutral” recommendation on the stock.

ADP Reaches India

Automatic Data Processing Inc. ( ADP) recently marked its entry into the lucrative Indian market with the acquisition of Ma Foi Consulting Solutions Ltd, an Indian human resource and payroll management company. The acquired company was previously a part of Ma Foi Randstad, an Indian subsidiary of RANDSTAND HOLDINGS. Though the financial details of the deal were not disclosed, ADP stated that it will incorporate Ma Foi’s 200 associates.

ADP will now manage Ma Foi’s extensive Indian clientele, including both domestic and multinational companies. The acquisition is a strategic fit for the company as it will facilitate further expansion in developing markets. Through this acquisition, ADP will gain access to the growing market of human resource business process outsourcing (HR BPO) in India.

Incidentally, Ma Foi and ADP have enjoyed a healthy business relationship since 2009 for the marketing and operations of ADP Streamline, ADP’s multi-country payroll and human resource service.

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