Analyzing Barrett Business Services (NASDAQ:BBSI) and Automatic Data Processing (NASDAQ:ADP)

Automatic Data Processing (NASDAQ:ADP) and Barrett Business Services (NASDAQ:BBSI) are both industrials companies, but which is the better stock? We will contrast the two businesses based on the strength of their earnings, profitability, dividends, valuation, analyst recommendations, institutional ownership and risk.

Volatility and Risk

Automatic Data Processing has a beta of 0.83, meaning that its share price is 17% less volatile than the S&P 500. Comparatively, Barrett Business Services has a beta of 0.94, meaning that its share price is 6% less volatile than the S&P 500.

Dividends

Automatic Data Processing pays an annual dividend of $6.80 per share and has a dividend yield of 2.3%. Barrett Business Services pays an annual dividend of $0.32 per share and has a dividend yield of 1.0%. Automatic Data Processing pays out 62.2% of its earnings in the form of a dividend. Barrett Business Services pays out 23.5% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Automatic Data Processing has increased its dividend for 49 consecutive years and Barrett Business Services has increased its dividend for 1 consecutive years. Automatic Data Processing is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation and Earnings

This table compares Automatic Data Processing and Barrett Business Services”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Automatic Data Processing	$21.95 billion	5.29	$4.41 billion	$10.94	26.76
Barrett Business Services	$1.24 billion	0.63	$54.45 million	$1.36	23.59

Automatic Data Processing has higher revenue and earnings than Barrett Business Services. Barrett Business Services is trading at a lower price-to-earnings ratio than Automatic Data Processing, indicating that it is currently the more affordable of the two stocks.

Insider & Institutional Ownership

80.0% of Automatic Data Processing shares are owned by institutional investors. Comparatively, 86.8% of Barrett Business Services shares are owned by institutional investors. 0.2% of Automatic Data Processing shares are owned by company insiders. Comparatively, 4.8% of Barrett Business Services shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Profitability

This table compares Automatic Data Processing and Barrett Business Services’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Automatic Data Processing	20.11%	71.34%	6.73%
Barrett Business Services	2.77%	20.95%	6.11%

Analyst Ratings

This is a breakdown of current ratings and target prices for Automatic Data Processing and Barrett Business Services, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Automatic Data Processing	1	8	3	0	2.17
Barrett Business Services	0	3	2	1	2.67

Automatic Data Processing presently has a consensus price target of $273.50, suggesting a potential downside of 6.58%. Barrett Business Services has a consensus price target of $41.00, suggesting a potential upside of 27.81%. Given Barrett Business Services’ stronger consensus rating and higher possible upside, analysts clearly believe Barrett Business Services is more favorable than Automatic Data Processing.

Summary

Automatic Data Processing beats Barrett Business Services on 11 of the 18 factors compared between the two stocks.

About Automatic Data Processing

Automatic Data Processing, Inc. provides cloud-based human capital management solutions worldwide. It operates in two segments, Employer Services and Professional Employer Organization (PEO). The Employer Services segment offers strategic, cloud-based platforms, and human resources (HR) outsourcing solutions. Its offerings include payroll services, benefits administration, talent management, HR management, workforce management, insurance, retirement, and compliance services, as well as integrated HCM solutions. The PEO Services segment provides HR outsourcing solution to businesses through a co-employment model. This segment offers employee benefits, protection and compliance, talent engagement, expertise, comprehensive outsourcing, and recruitment process outsourcing services. Automatic Data Processing, Inc. was founded in 1949 and is headquartered in Roseland, New Jersey.

About Barrett Business Services

Barrett Business Services, Inc. provides business management solutions for small and mid-sized companies in the United States. The company develops a management platform that integrates a knowledge-based approach from the management consulting industry with tools from the human resource outsourcing industry. It offers professional employer services under which it enters into a client services agreement to establish a co-employment relationship with each client company, assuming responsibility for payroll, payroll taxes, workers compensation coverage, and other administration functions for the client’s existing workforce. The company provides staffing and recruiting services, such as on-demand or short-term staffing assignment, contract staffing, direct placement, and long-term or indefinite-term on-site management services. It serves electronics manufacturers, light-manufacturing industries, agriculture-based companies, transportation and shipping enterprises, food processors, telecommunications companies, public utilities, general contractors in various construction-related fields, restaurant franchises, and professional services firms. Barrett Business Services, Inc. was incorporated in 1965 and is headquartered in Vancouver, Washington.