Automatic Data Processing, Inc. (ADP) | Investment Case

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

Last Price	236.41
Change Percentage	-4.51%
Open	244.15
Previous Close	247.56
Market Cap ( Millions)	95614
Volume	2427337
Year High	329.93
Year Low	235.94
M A 50	257.77
M A 200	287.45

FCF Yield	4.81%
Dividend Yield	2.68%
ROE	68.28%
Debt / Equity	72.45%
Net Debt / EBIDTA	34.16%
Price To Book	14.92
Price Earnings Ratio	22.52
Price To FCF	20.79
Price To sales	4.5
EV / EBITDA	15.13

2. ADP's Strong Q2 Results Driven by HCM Technology and Global Scale

Automatic Data Processing, Inc. (ADP) reported robust second-quarter results, with revenue growth of 6%, adjusted EBIT margin expansion of 80 basis points, and adjusted EPS growth of 11%. The company's adjusted EPS came in at $2.62, beating estimates of $2.57. The strong financial performance was driven by the company's strategic priorities, including leading with best-in-class HCM technology, providing unmatched expertise and outsourcing solutions, and benefiting clients with global scale.

Publication Date: Feb -02

                                    📋 Highlights
                                    Financial Performance:
                                                ADP reported 6% revenue growth, 80 bps adjusted EBIT margin expansion, and 11% adjusted EPS growth in Q2.
HCM Technology Expansion:
                                                Workforce Now and ADP Lyric platforms drove strong traction, with AI-powered ADP Assist agents enhancing payroll, HR, and analytics workflows.
Outsourcing Innovation:
                                                Launched first pooled employer plan (PEP), enabling unrelated employers to share a single 401(k) plan, shifting compliance burdens to ADP.
Global Scale Success:
                                                Served over 70,000 international clients, including a 75,000-employee European bank win, with 16 million wage earners across 140+ countries.
Strategic Guidance:
                                                Raised FY2026 outlook to 6% revenue growth and 9-10% adjusted EPS growth, supported by 50-70 bps EBIT margin expansion and share repurchases.

                                

Revenue Growth and Margin Expansion

ADP's Employer Services (ES) segment reported revenue growth of 6% on a reported basis and 5% on an organic constant currency basis. The company's PEO revenue growth was also strong, coming in at 6%. The adjusted EBIT margin expansion was driven by the company's focus on operational efficiency and pricing discipline, with Peter Hadley, CFO, noting that the margin cadence is expected to continue in the second half of the year.

Strategic Priorities Driving Growth

ADP's HCM technology is gaining traction, with its Workforce Now and ADP Lyric platforms experiencing strong demand. The company is also leveraging AI to attract, serve, and retain clients, with the launch of new ADP Assist payroll, HR, analytics, and tax agents. Maria Black, President and CEO, highlighted the importance of the company's global scale, with the win of a large European bank with over 75,000 employees being a significant highlight of the quarter.

Valuation and Outlook

ADP's current valuation multiples, including a P/E Ratio of 23.53 and an EV/EBITDA of 15.8, suggest that the market is pricing in a certain level of growth and profitability. Analysts estimate next year's revenue growth at 5.8%. With the company's strong track record of delivering on its strategic priorities and its focus on operational efficiency, ADP is well-positioned to continue delivering strong financial performance. The company's guidance for fiscal 2026, including consolidated revenue growth of around 6% and adjusted EPS growth of 9% to 10%, suggests that the company is on track to deliver sustained growth.

Dividend Yield and Shareholder Returns

ADP's Dividend Yield of 2.56% provides a relatively stable source of return for investors, and the company's history of returning capital to shareholders through share repurchases is a positive factor. With the company's strong financial performance and its commitment to returning capital to shareholders, ADP is an attractive investment opportunity for income investors.

3. NewsRoom

Top 10 High-Yield Dividend Stocks For February 2026

11:22

Source: seekingalpha.com

Top 15 High-Growth Dividend Stocks For February 2026

Feb -02

Source: seekingalpha.com

Best Dividend Aristocrats For February 2026

Jan -31

Source: seekingalpha.com

Automatic Data Processing Q2 Earnings Call Highlights

Jan -30

Source: defenseworld.net

Automatic Data Processing Inc (ADP) Q2 2026 Earnings Call Highlights: Strong Revenue and EPS Growth Amid Strategic Expansions

Jan -28

Source: gurufocus.com

Automatic Data Processing Q2 Earnings Top Estimates, Revenues Rise Y/Y

Jan -28

Source: zacks.com

Automatic Data Processing: Still Expensive Given Macro Headwinds

Jan -28

Source: seekingalpha.com

Automatic Data Processing, Inc. (ADP) Q2 2026 Earnings Call Transcript

Jan -28

Source: seekingalpha.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

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

Strong Liquidity

Low Deb

Strong Interest Coverage

Healthy Cash Flow

Operating Efficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

TransDigm Group

A-Score: 7.0/10

Value: 3.0

Growth: 8.0

Quality: 6.7

Yield: 9.0

Momentum: 7.0

Volatility: 8.3

1-Year Total Return ->

PACCAR

A-Score: 6.0/10

Value: 4.1

Growth: 6.7

Quality: 5.0

Yield: 8.0

Momentum: 4.0

Volatility: 8.3

1-Year Total Return ->

Paychex

A-Score: 6.0/10

Value: 2.1

Growth: 5.8

Quality: 9.0

Yield: 7.0

Momentum: 2.5

Volatility: 9.3

1-Year Total Return ->

Korn Ferry

A-Score: 5.8/10

Value: 6.6

Growth: 5.7

Quality: 6.3

Yield: 4.0

Momentum: 3.5

Volatility: 9.0

1-Year Total Return ->

ADP

A-Score: 5.7/10

Value: 2.0

Growth: 6.7

Quality: 7.1

Yield: 5.0

Momentum: 3.5

Volatility: 10.0

1-Year Total Return ->

Barrett Business Services

A-Score: 4.9/10

Value: 4.7

Growth: 5.6

Quality: 6.2

Yield: 2.0

Momentum: 3.0

Volatility: 7.7

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

4.23%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

7.87%

Automatic Data Processing, Inc. - US0530151036

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on ADP

1.c. Company Highlights

Less Volatile

Expensive

Better Quality

Earnings Beats

Revenues Beats

Lower Growth

2. ADP's Strong Q2 Results Driven by HCM Technology and Global Scale

Revenue Growth and Margin Expansion

Strategic Priorities Driving Growth

Valuation and Outlook

Dividend Yield and Shareholder Returns

3. NewsRoom

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%

Professional Employer Organization (PEO) Services

Expected Growth: 7.0%

Other

Expected Growth: 4.0%

7. Detailed Products

Payroll Processing

Human Capital Management (HCM)

Workforce Management

Benefits Administration

Compliance and Governance

Talent Management

Analytics and Benchmarking

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

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

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

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

236.4$

Current Price

236.41$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA