Automatic Data Processing (ADP) has received a new Hold rating, initiated by BMO Capital analyst, Daniel Jester.
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Daniel Jester has given his Hold rating due to a combination of factors that highlight both the strengths and current valuation challenges of Automatic Data Processing (ADP). ADP’s diverse business lines and improved product offerings have contributed to its robust financial health, characterized by consistent double-digit EPS growth and a solid balance sheet. These strengths have allowed ADP to maintain stability in a volatile macroeconomic environment, especially compared to smaller peers. However, the stock is currently trading at the higher end of its historical price-to-earnings range, which suggests that the market has already priced in much of these positive attributes.
Additionally, while ADP is a leader in the HR technology landscape and has potential growth opportunities with new initiatives like Lyric and AI enhancements, the valuation remains a concern. The shares are trading at over 28 times the next twelve months’ price-to-earnings ratio, which is high given the current macroeconomic uncertainties and limited immediate catalysts. Jester’s target price of $340 is based on a valuation model that assumes continued EPS growth without a recession, but the current high valuation leads to a cautious stance, thus supporting the Hold rating.
Jester covers the Technology sector, focusing on stocks such as Intuit, Autodesk, and Workday. According to TipRanks, Jester has an average return of 6.9% and a 55.49% success rate on recommended stocks.
In another report released yesterday, DBS also assigned a Hold rating to the stock with a $306.00 price target.