BMO 'Learned Some New Things' From Pershing Deep Dive Into ADP

Automatic Data Processing (NASDAQ: ADP) management and investors weren’t particularly impressed by Bill Ackman’s presentation on how to improve its business on Thursday. However, BMO Capital Markets analyst Jeffrey Silber believes a handful of Ackman’s suggestions may at least be worth a second look.

In a note on Friday, Silber said ADP looks to be headed toward a proxy fight, one that could potentially weigh on the company’s share price in the near-term.

In his presentation, Ackman blamed ADP’s lagging growth mostly on mismanagement in its Employer Services segment and a bloated, outdated and overstaffed corporate structure. Ackman argued these issues are causing ADP to lose customers to more technology-focused competition, such as The Ultimate Software Group, Inc. (NASDAQ: ULTI) and Workday Inc (NYSE: WDAY).

Silber said it’s difficult to compare ADP’s valuation to the companies mentioned above considering the massive amount of disruption and restructuring it would take to transition ADP to a pure-play tech company.

While Silber admitted Ackman raised some good points in his presentation, BMO sees limited upside to the stock at the moment.

“While Pershing's goals may be overly ambitious without both external and internal disruptions, some suggestions may be worth investigating (e.g., corporate overhead reductions),” Silber wrote.

Related Link: Everything You Need To Know About The ADP Drama

Silber’s take on the situation mirrors that of Deutsche Bank analyst Bryan Keane, who sees a “difficult path to a quick turnaround” for ADP.

BMO maintains a Market Perform rating for ADP and a $105 price target for the stock. Deutsche Bank is also staying on the sidelines with a Hold rating and $102 price target.