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1. Company Snapshot

1.a. Company Description

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, 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 solutions to small and mid-sized businesses through a co-employment model.


This segment offers benefits package, protection and compliance, talent engagement, expertise, comprehensive outsourcing, and recruitment process outsourcing services.The company was founded in 1949 and is headquartered in Roseland, New Jersey.

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1.b. Last Insights on ADP

ADP's recent performance was impacted by cautious investor response to its strong Q1 earnings beat, with revenue growth of 7.2% and EPS of $2.49. Despite beating expectations, management's rare quarterly guidance update may have contributed to investor caution. The company's PEO segment, AI-driven product enhancements, and labor market and macroeconomic risks are key focus areas. A potential downward revision to full-year outlook could signal trouble amid economic uncertainty. (Source: Automatic Data Processing Q1 Preview: Might Be More Downside To Come)

1.c. Company Highlights

2. ADP's Q1 Earnings: A Closer Look at Financial Performance

ADP reported a 7% increase in revenue and a 7% growth in adjusted EPS in the first quarter, with actual EPS coming in at $2.49, beating estimates of $2.44. The company's Employer Services segment revenue rose 7% on a reported basis and 5% on an organic constant currency basis. The ES margin decreased 50 basis points in Q1, reflecting integration and acquisition-related costs. Client funds interest revenue is expected to be in the range of $1.30 billion to $1.32 billion for the full year, with the company increasing its forecast by $10 million.

Publication Date: Oct -30

📋 Highlights
  • Revenue & EPS Growth:: 7% revenue and 7% adjusted EPS growth in Q1, driven by Employer Services and small business expansion.
  • Employer Services Progress:: 7% reported revenue growth (5% organic), with full-year guidance maintained at 4%-7% and 5%-6% for the segment.
  • Workforce Now Next-Gen Adoption:: 80% of new mid-market clients (50-150 employees) adopted the platform, improving implementation efficiency and client satisfaction.
  • Lyric HCM Momentum:: Exceeded Q1 expectations, with strong new business pipeline and strategic acquisition contributions enhancing client offerings.
  • Client Funds Interest Revenue:: Guidance raised to $1.30B–$1.32B (+$10M), reflecting balance growth and extended investment strategy benefits.

Revenue Growth and Margin Analysis

The company's revenue growth was driven by solid Employer Services new business bookings, growth in its small business portfolio, and reaccelerated growth in its Employer Services HR Outsourcing business. The Employer Services HR Outsourcing business saw big complex deals cross the finish line, while Lyric HCM continued to gain interest and demand. However, Embedded Payroll, a key growth area, did not contribute significantly to the first quarter's numbers.

Valuation Metrics and What's Priced In

With a P/E Ratio of 25.59 and an EV/EBITDA of 17.72, the market seems to be pricing in a certain level of growth for ADP. The company's ROE stands at 70.42%, indicating strong profitability. Analysts estimate next year's revenue growth at 6.2%, which is slightly higher than the current year's growth rate. The Dividend Yield is 2.36%, providing a relatively stable source of return for investors.

Guidance and Outlook

ADP maintained its 4% to 7% full-year growth guidance, with the Employer Services revenue growth forecast remaining unchanged at 5% to 6%. The company guided to a flat full-year pays per control number, driven by small movements in hiring patterns. However, the acquisition of WorkForce Software is expected to contribute to margin decline in the fourth quarter.

Strategic Acquisitions and Innovation

The company made a strategic acquisition in the quarter, bringing best-in-class HCM technology and innovative compensation management software. The financial profile of the acquisition is not meaningful in the context of ADP for this fiscal year. ADP is also progressing with the rollout of AI for its sales force, with 40% of sellers already using the tool, which is expected to be a game-changer.

3. NewsRoom

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Market Today: WBD Sale Bids, Meta Cuts, Apple Shake-Up

Dec -04

Source: gurufocus.com

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Jobless Claims Puzzlingly Light, Lowest in 3 Years

Dec -04

Source: zacks.com

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First Look: Insurers, Auto Rules, AI and Fed Jitters

Dec -04

Source: gurufocus.com

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Automatic Data Processing: This Dividend Aristocrat Trades At A Bargain Again

Dec -04

Source: seekingalpha.com

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Automatic Data Processing, Inc. (NASDAQ:ADP) Given Consensus Rating of “Hold” by Brokerages

Dec -04

Source: defenseworld.net

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Headline ADP Payrolls Number Comes in Negative

Dec -03

Source: zacks.com

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ADP Disappoints: -32K Private Sector Jobs Last Month

Dec -03

Source: zacks.com

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Apple stock up 7 straight sessions, ADP reports 32,000 private payroll jobs lost in November

Dec -03

Source: youtube.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (5.99%)

6. Segments

Employer Services

Expected Growth: 5.5%

ADP's Employer Services growth (5.5%) is driven by increasing demand for payroll processing, benefits administration, and HR outsourcing. Its robust technology platform, client retention, and strategic acquisitions, such as Workbench, also contribute to growth. ADP's diversified service offerings and expanding client base across various industries further fuel segment expansion.

Professional Employer Organization (PEO) Services

Expected Growth: 7.0%

ADP's PEO services growth is driven by increasing demand for outsourced HR solutions, expanding workforce management needs, and rising adoption of cloud-based platforms. The 7.0% growth reflects strong sales execution, continued investment in product innovation, and strategic acquisitions that enhance ADP's PEO capabilities and client value proposition.

Other

Expected Growth: 4.0%

The 4.0% growth in Other segment from Automatic Data Processing, Inc. is driven by increased demand for HR and payroll services, expansion of its client base, and rising adoption of digital platforms, particularly in the small and medium-sized businesses sector, contributing to steady revenue growth.

7. Detailed Products

Payroll Processing

ADP's payroll processing service provides accurate and timely payment of employee salaries and benefits, including tax compliance and reporting.

Human Capital Management (HCM)

ADP's HCM solution provides a comprehensive platform for managing employee data, time tracking, benefits administration, and performance management.

Workforce Management

ADP's workforce management solution provides tools for scheduling, time tracking, and labor forecasting, helping businesses optimize their workforce and reduce labor costs.

Benefits Administration

ADP's benefits administration service provides a platform for managing employee benefits, including health insurance, retirement plans, and other benefits.

Compliance and Governance

ADP's compliance and governance solutions provide tools and services to help businesses comply with labor laws, regulations, and industry standards.

Talent Management

ADP's talent management solution provides tools for recruiting, performance management, and succession planning, helping businesses attract, retain, and develop top talent.

Analytics and Benchmarking

ADP's analytics and benchmarking solutions provide insights and data to help businesses make informed decisions about their workforce and operations.

8. Automatic Data Processing, Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Automatic Data Processing, Inc. faces moderate threat from substitutes due to the presence of alternative payroll processing and human capital management solutions.

Bargaining Power Of Customers

Automatic Data Processing, Inc. has a large customer base, which reduces the bargaining power of individual customers, making it a low threat.

Bargaining Power Of Suppliers

Automatic Data Processing, Inc. has a diversified supplier base, reducing the bargaining power of individual suppliers, making it a low threat.

Threat Of New Entrants

The payroll processing and human capital management industry has high barriers to entry, making it difficult for new entrants to compete with Automatic Data Processing, Inc.

Intensity Of Rivalry

The payroll processing and human capital management industry is highly competitive, with several established players, making the intensity of rivalry high for Automatic Data Processing, Inc.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 67.16%
Debt Cost 7.87%
Equity Weight 32.84%
Equity Cost 7.87%
WACC 7.87%
Leverage 204.53%

11. Quality Control: Automatic Data Processing, Inc. passed 7 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
TransDigm Group

A-Score: 6.4/10

Value: 3.0

Growth: 7.9

Quality: 6.7

Yield: 9.0

Momentum: 4.0

Volatility: 8.0

1-Year Total Return ->

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Stock-Card
Barrett Business Services

A-Score: 6.0/10

Value: 5.9

Growth: 5.6

Quality: 6.0

Yield: 2.0

Momentum: 7.0

Volatility: 9.7

1-Year Total Return ->

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Stock-Card
PACCAR

A-Score: 6.0/10

Value: 3.7

Growth: 6.7

Quality: 6.1

Yield: 8.0

Momentum: 3.0

Volatility: 8.3

1-Year Total Return ->

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Stock-Card
ADP

A-Score: 5.8/10

Value: 2.0

Growth: 6.8

Quality: 7.2

Yield: 4.0

Momentum: 5.0

Volatility: 10.0

1-Year Total Return ->

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Stock-Card
Paychex

A-Score: 5.8/10

Value: 1.8

Growth: 5.8

Quality: 9.0

Yield: 6.0

Momentum: 3.0

Volatility: 9.3

1-Year Total Return ->

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Stock-Card
Korn Ferry

A-Score: 5.8/10

Value: 6.2

Growth: 5.8

Quality: 6.3

Yield: 4.0

Momentum: 4.0

Volatility: 8.3

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

261.63$

Current Price

261.63$

Potential

-0.00%

Expected Cash-Flows