Automatic Data Processing (ADP) AI Stock Analysis

• Market Cap: $84.20B
• Dividend Yield: 2.46%
• Average Volume (3M): 3.92M
• Price to Earnings (P/E): 24.4
• Beta (1Y): 0.55
• Revenue Growth: 7.07%
• EPS Growth: 8.32%
• Country: US
• Employees: 64,000
• Sector: Technology
• Sector Strength: 88
• Industry: Staffing & Employment Services
• EPS (TTM): 2.62
• Shares Outstanding: 402,644,380
• 10 Day Avg. Volume: 3,826,259
• 30 Day Avg. Volume: 3,918,010
• PEG Ratio: 3.20
• Price to Book (P/B): 20.29
• Price to Sales (P/S): 6.11
• P/FCF Ratio: 26.32
• Enterprise Value/Market Cap: 1.03
• Enterprise Value/Revenue: 4.10
• Enterprise Value/Gross Profit: 8.48
• Enterprise Value/Ebitda: 13.47
• 1Y Price Target: $276.83
• Price Target Upside: 32.39% Upside
• Rating Consensus: Hold
• Number of Analyst Covering: 12
• EPS Forecast (FY): 10.97
• Revenue Forecast (FY): $21.80B

• Rating: 76 Outperform
• Price Target: $236.00 ▲(12.86% Upside)
• Action: Reiterated Date: 01/29/26
• Date: Action: Reiterated 01/29/26

The score is driven primarily by strong financial quality (durable margins and solid cash generation) and a constructive earnings update (raised FY2026 guidance plus larger buyback and higher dividend). These positives are partially offset by weak technicals (downtrend with negative MACD and below key moving averages) and a valuation that is reasonable but not deeply discounted.

Positive Factors

High and improving margins

Sustained high gross and net margins indicate durable pricing power and operating leverage across ADP’s HCM services. Consistently strong margins support reinvestment, dividends and buybacks, and provide a cushion against cyclical revenue swings over the next 2–6 months.

Strong free cash flow conversion

Near‑unity FCF-to-net‑income conversion and sizable absolute FCF provide reliable internal funding for share repurchases, dividends and product investment. High quality cash generation reduces reliance on external financing and underpins long‑term capital allocation flexibility.

Product, AI momentum and enterprise wins

Early commercial traction for NextGen, AI agents and strong new‑logo bookings signal durable product differentiation and a growing technology moat. Enterprise and international wins expand addressable market and improve cross‑sell potential, supporting medium‑term revenue mix improvement.

Negative Factors

Rising leverage

Material increase in leverage reduces financial flexibility and raises downside risk if revenue or interest income weakens. Higher debt amplifies interest expense sensitivity and could constrain M&A or buyback capacity if cash flows decline during adverse operating conditions.

PEO margin and organic growth pressure

PEO is a core, higher‑growth segment; margin compression and muted underlying growth reduce segment contribution to consolidated profitability. Persistent mix toward zero‑margin pass‑throughs and higher selling costs may limit margin recovery and increase earnings volatility.

New integrations not yet monetized

Strategic integrations expand capabilities but current limited monetization means near‑term revenue upside is uncertain. Delayed contribution from embedded offerings prolongs reliance on core processing fees and slows diversification of fee pools over the medium term.

Automatic Data Processing Business Overview & Revenue Model

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.

How the Company Makes Money

ADP primarily makes money by charging employers recurring fees to run HR and payroll processes and to access its HCM software platforms, and by earning interest-related income on client funds it holds temporarily. 1) Employer Services (fees for HCM software and outsourced processing): ADP’s largest revenue stream comes from fees paid by clients for payroll processing and related tax services (e.g., calculating wages, producing pay statements, remitting payroll taxes, and year-end forms), as well as for HR modules delivered largely on a subscription and/or per-employee-per-month basis. Additional fees come from adjacent HCM capabilities such as time and attendance/workforce management, benefits administration, talent and recruiting tools, and other compliance and HR services. Revenue tends to scale with the number of employees on clients’ payrolls, the breadth of modules adopted, and retention/renewals of ongoing service contracts. 2) PEO Services (co-employment and bundled HR/benefits offering): Through its PEO business, ADP earns revenue by providing bundled HR outsourcing under a co-employment arrangement, which includes payroll, HR support, workers’ compensation administration, and access to employee benefits. In this model, ADP typically earns an administrative fee component for services provided, while also arranging and administering benefits and insurance-related programs for worksite employees. The economics of this segment are influenced by worksite employee counts, benefit offerings, and employment-related costs. 3) Interest on client funds ("float") and related investment income: ADP collects payroll and payroll-tax monies from clients before paying employees and remitting taxes to authorities. During this short holding period, ADP invests these client funds in a conservative investment portfolio. ADP earns interest income (net of amounts credited/paid to clients where applicable), so results are influenced by short-term interest rates, the amount of client funds held (which varies with payroll volumes and employment levels), and portfolio yields/duration. 4) Implementation, add-on services, and ecosystem relationships: In addition to recurring processing/subscription fees, ADP can generate revenue from implementation services, integrations, and certain add-on services tied to its platforms. ADP also maintains integrations with other enterprise software providers (e.g., accounting/ERP, benefits, and time systems); while specific commercial arrangements vary and are not always publicly itemized, these partnerships support customer acquisition, retention, and upsell of additional modules, which in turn drives recurring fee revenue. Key factors affecting earnings include employment levels and wage growth (which influence payroll volumes), client retention, adoption of additional HCM modules, regulatory/compliance complexity that increases demand for outsourced solutions, and prevailing interest rates that impact interest income on client funds.

Automatic Data Processing Financial Statement Overview

Summary

High-quality fundamentals: strong and improving profitability (TTM gross margin ~49%, net margin ~19–20%), steady revenue growth, and solid cash conversion (FCF ~0.97x net income; ~$4.6B TTM). Offsets include higher leverage (debt-to-equity ~1.46–1.49x) and a recent TTM free cash flow decline (-9.8%).

Income Statement

ADP shows strong, consistent profitability with high and improving margins: gross margin is ~49% in TTM (Trailing-Twelve-Months) (up from low-40s in FY2021–FY2022) and net margin is ~19–20% across the period. Revenue has grown steadily from $15.0B (FY2021) to $20.6B (FY2025), and TTM revenue is $21.2B. The main weakness is that the latest growth signal is mixed—TTM revenue growth rate is shown as very high versus the more moderate ~6–10% pace in recent annual reports, suggesting potential volatility/noise in the growth figure despite stable margins.

Balance Sheet

Returns on shareholders’ equity are extremely high (roughly ~46% to ~97% historically and ~68% in TTM (Trailing-Twelve-Months)), indicating strong earnings power relative to the equity base. However, leverage has moved up: debt relative to equity rose from ~0.59x (FY2021) to ~1.46–1.49x (FY2025/TTM). Total debt also increased notably in FY2025 versus FY2024, which raises balance-sheet risk if operating conditions weaken.

Cash Flow

Cash generation is strong and high-quality, with free cash flow closely matching net income (about ~0.82–0.97x across the years; ~0.97x in TTM (Trailing-Twelve-Months)). Free cash flow is consistently positive and sizeable (about $4.6B in TTM (Trailing-Twelve-Months)). The key drawback is recent momentum: free cash flow growth is negative in TTM (Trailing-Twelve-Months) (-9.8%) after a strong FY2025, indicating some near-term pressure despite solid underlying conversion.

Breakdown	TTM	Jun 2025	Jun 2024	Jun 2023	Jun 2022	Jun 2021
Income Statement
Total Revenue	21.21B	20.56B	19.20B	18.01B	16.50B	15.01B
Gross Profit	10.26B	10.45B	9.59B	8.81B	7.73B	6.97B
EBITDA	6.46B	6.24B	5.80B	5.24B	4.41B	3.93B
Net Income	4.24B	4.08B	3.75B	3.41B	2.95B	2.60B
Balance Sheet
Total Assets	84.64B	53.37B	54.36B	50.97B	63.07B	48.77B
Cash, Cash Equivalents and Short-Term Investments	2.47B	7.85B	3.30B	2.10B	1.48B	2.58B
Total Debt	4.63B	9.07B	3.71B	3.44B	3.49B	3.35B
Total Liabilities	78.25B	47.18B	49.82B	47.46B	59.84B	43.10B
Stockholders Equity	6.39B	6.19B	4.55B	3.51B	3.23B	5.67B
Cash Flow
Free Cash Flow	4.60B	4.77B	3.59B	3.64B	2.55B	2.59B
Operating Cash Flow	4.74B	4.94B	4.16B	4.21B	3.10B	3.09B
Investing Cash Flow	-2.67B	-3.04B	-1.39B	-2.52B	-7.01B	-3.52B
Financing Cash Flow	14.89B	-6.97B	-1.43B	-15.68B	13.65B	6.44B

Automatic Data Processing Technical Analysis

• Technical Analysis Sentiment: Negative
• Last Price: 209.11
• 50DMA: Negative
• 100DMA: Negative
• 200DMA: Negative
• MACD: Negative
• RSI: Neutral
• STOCH: Positive

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For ADP, the sentiment is Negative. The current price of 209.11 is below the 20-day moving average (MA) of 213.16, below the 50-day MA of 232.52, and below the 200-day MA of 270.46, indicating a bearish trend. The MACD of -5.32 indicates Negative momentum. The RSI at 38.85 is Neutral, neither overbought nor oversold. The STOCH value of 7.79 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for ADP.

Automatic Data Processing Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
ADP	76 Outperform	$84.20B	24.45	68.28%	2.46%	7.07%	8.32%
PAYX	73 Outperform	$33.42B	25.14	39.66%	3.70%	12.37%	-7.18%
Sector *	61 Neutral	$37.18B	12.37	-10.20%	1.83%	8.50%	-7.62%
RHI	59 Neutral	$2.21B	20.45	10.26%	8.65%	-7.27%	-43.88%
MAN	51 Neutral	$1.22B	-104.17	-0.65%	4.96%	-2.44%	-156.01%
TNET	48 Neutral	$1.76B	18.31	111.30%	1.81%	0.99%	-47.02%
NSP	43 Neutral	$819.46M	-210.19	-7.69%	6.37%	3.19%	-86.21%