Automatic Data Processing (ADP) AI Stock Analysis

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Automatic Data Processing

(NASDAQ:ADP)

Select Model

Outperform 76 (OpenAI - 5.2)

Rating:76Outperform

Price Target:

$232.00

▲(12.80% Upside)

Action:ReiteratedDate: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

Durable Profitability

ADP's high and improving gross and net margins reflect durable pricing power in payroll/HCM services and operational scale. Sustained margins support predictable earnings, buffer cyclical revenue swings, and enable consistent reinvestment in product and AI capabilities over the medium term.

Recurring, Scalable Model

A large, global client base and recurring subscription/process fees create high retention and cross-sell potential. Scale across payroll, benefits and tax drives network effects and distribution advantages that sustain revenue visibility and product monetization over multiple years.

Strong Cash Generation

Consistent, high-quality free cash flow near net income levels funds organic investment, product development (Workforce Now NextGen, AI), and shareholder returns without relying on equity issuance. Robust cash conversion enhances strategic flexibility over the next several quarters.

Negative Factors

Rising Leverage

Leverage has increased materially versus prior years, reducing financial flexibility. Higher debt amplifies earnings volatility from interest costs, constrains bolt-on M&A or discretionary spend during downturns, and makes cash flow stability more critical to maintaining buybacks/dividends.

PEO Margin Pressure

The PEO segment faces structural margin headwinds from mix shifts (zero‑margin pass‑throughs) and higher selling costs. Given PEO's scale in ADP's portfolio, persistent margin degradation would weigh on consolidated profitability and complicate long-term margin expansion targets.

Retention & Margin Cadence Risk

Modest retention deterioration and timing effects on yields create revenue visibility risk. Even small sustained retention declines reduce lifetime customer value and slow cross-sell, while shifted margin expansion timing increases execution risk for multi-quarter margin improvement plans.

Automatic Data Processing (ADP) vs. SPDR S&P 500 ETF (SPY)

Market Cap

$82.82B

Dividend Yield2.46%

Average Volume (3M)3.12M

Price to Earnings (P/E)19.8

Beta (1Y)0.55

Revenue Growth7.07%

EPS Growth8.32%

CountryUS

Employees64,000

SectorTechnology

Sector Strength88

IndustryStaffing & Employment Services

Share Statistics

EPS (TTM)2.62

Shares Outstanding402,644,380

10 Day Avg. Volume3,952,504

30 Day Avg. Volume3,123,055

Financial Highlights & Ratios

PEG Ratio3.20

Price to Book (P/B)20.29

Price to Sales (P/S)6.11

P/FCF Ratio26.32

Enterprise Value/Market Cap1.07

Enterprise Value/Revenue4.19

Enterprise Value/Gross Profit8.66

Enterprise Value/Ebitda13.76

Forecast

1Y Price Target

$276.83

Price Target Upside34.59% Upside

Rating ConsensusHold

Number of Analyst Covering12

EPS Forecast (FY)10.97

Revenue Forecast (FY)$21.80B

Automatic Data Processing Business Overview & Revenue Model

Company DescriptionAutomatic 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 MoneyADP primarily generates revenue through its service-based model, which includes recurring fees for its payroll and HCM services. The company earns money from subscription fees for its cloud-based software solutions, as well as fees for processing payroll and related services. Key revenue streams include payroll services, which account for a significant portion of revenue, and human capital management services, including talent acquisition and management, benefits administration, and compliance solutions. Additionally, ADP benefits from partnerships with various financial institutions and technology providers, enhancing its service offerings and expanding its customer base. The company's ability to retain clients through long-term contracts and the growing demand for integrated HCM solutions in the market also contribute significantly to its earnings.

Automatic Data Processing Key Performance Indicators (KPIs)

Any

Revenue by Segment

Revenue by Segment
Analyzes income from different business units, highlighting which areas drive growth and profitability, and indicating strategic focus and market positioning.

Chart InsightsADP's Employer Services segment continues to show robust growth, driven by record new business bookings and high client satisfaction, despite a slight decline in retention rates. PEO Services also exceeded expectations with a 7% revenue increase, supported by higher wages and zero-margin pass-throughs. However, challenges remain with flat pays per control growth and margin pressures in both segments. The company's strategic focus on global expansion and HR outsourcing is paying off, but cautious client behavior around headcount additions could temper future growth.

Data provided by:

The Fly

Automatic Data Processing Earnings Call Summary

Earnings Call Date:Jan 28, 2026

(Q2-2026)

% Change Since: |

Next Earnings Date:May 06, 2026

Earnings Call Sentiment Positive

The call conveyed a predominantly positive tone: strong Q2 financial results, upward revisions to revenue and EPS guidance, record client satisfaction, meaningful product and AI momentum (Workforce Now NextGen, Lyric, ADP Assist), and a substantial $6B buyback and 10% dividend increase. Headwinds were noted in the PEO business (weaker underlying growth ex pass-throughs, 70 bps margin decline), a modest retention decline, and near-term margin cadence pressure driven by portfolio yield/timing effects. On balance, the highlights significantly outweigh the lowlights.

Q2-2026 Updates

Positive Updates

Strong Quarterly Financial Results

Q2 consolidated revenue growth of 6%; adjusted EBIT margin expansion of 80 basis points in the quarter; adjusted EPS growth of 11% year-over-year.

Raised Full-Year Outlook and Shareholder Returns

Management increased fiscal 2026 consolidated revenue outlook to about 6% and raised adjusted EPS growth guidance to 9%–10%; maintained adjusted EBIT margin expansion guidance of 50–70 basis points. Board authorized a $6 billion share repurchase program and announced a 10% dividend increase.

Employer Services and Client Funds Strength

Employer Services (ES) revenue up 6% reported (5% organic constant currency) with a 50 basis point ES margin increase in Q2. Client funds interest revenue forecast raised by $10 million to $1.31–$1.33 billion; updated forecast for average client funds balance growth of 4%–5% and average yield of ~3.4%.

Product & AI Momentum (Workforce Now, Lyric, ADP Assist)

Workforce Now NextGen reached first sale to a client with >1,000 employees; Lyric new business bookings exceeded expectations with >70% of bookings and pipeline from new logos and two wins >20,000 employees; launched ADP Workforce Suite; embedded Fiserv Cash Flow Central into RUN; scaling ADP Assist persona-based AI agents across payroll, HR, analytics and tax.

Record Client Satisfaction and International Win

Q2 represented the single best quarter for overall client satisfaction in company history. Significant international win: large European bank with >75,000 employees. Company serves >70,000 clients outside the U.S. and pays >16 million wage earners across 140+ countries.

PEO Revenue Growth Including Pass-Throughs

PEO revenue grew 6% in Q2 (including zero-margin pass-throughs), demonstrating continued demand for PEO and outsourcing services, and management described PEO bookings as solid.

Negative Updates

PEO Underlying Growth and Margin Pressure

PEO revenue excluding zero-margin pass-throughs grew 3% in Q2. PEO margins decreased 70 basis points in the quarter, driven by growth in zero-margin pass-throughs and higher selling expenses. PEO new business bookings were solid but came in slightly below management expectations.

Moderation in Average Worksite Employees and Pays per Control

Average worksite employee (WSE) growth outlook was lowered to about 2% for fiscal 2026. PEO pays-per-control growth moderated; ES pays-per-control growth rounded up to 1% in Q2 but management expects about flat pays-per-control growth for the full year.

Retention Slightly Weaker Than Prior Year

Employer services retention matched expectations but showed a modest decline in Q2; company maintains guidance for a 10–30 basis point decline in full-year retention versus prior year.

Near-Term Margin Cadence Headwinds

Management expects more margin expansion in Q4 than Q3. Q3 faces headwinds from lower yields on the short portfolio (a ~75 basis point reduction in Fed funds year-over-year impact) and timing effects, which could dampen near-term margin progression.

Comparability and Timing Effects on PEO Growth

Q2 comparisons were affected by last year's timing (e.g., prior-year SUI revenue pull-forwards), contributing to a larger Q1–Q2 growth differential and making near-term growth appear softer in PEO revenue ex pass-throughs.

New Embedded Offerings Not Yet Material

RUN integration with Fiserv Cash Flow Central completed in December, but management noted limited revenue/bookings contribution to date — the revenue opportunity is largely in front of the company and not yet material.

Company Guidance

Management raised its fiscal 2026 consolidated revenue outlook to about 6% and increased adjusted EPS guidance to 9–10%, while maintaining expected adjusted EBIT margin expansion of 50–70 basis points (with more of the expansion weighted to Q4 than Q3) and an effective tax rate of ~23%; key Employer Services guidance includes new business bookings of 4–7%, ES revenue growth of about 6%, pays‑per‑control roughly flat for the year, a 10–30 basis point expected full‑year decline in retention, average client funds balances up 4–5% with an average yield of ~3.4%, client funds interest revenue now forecast at $1.31–1.33 billion (up $10M) and net benefit from the extended investment strategy at $1.27–1.29 billion (up $10M); PEO guidance calls for fiscal 2026 revenue growth of 5–7% (3–5% excluding zero‑margin pass‑throughs), average worksite employee growth of ~2%, and management noted Q2 PEO revenue +6% ( +3% ex pass‑throughs) with PEO margins down 70 bps in Q2; the company also announced a $6 billion share repurchase authorization (replacing $5B) and a 10% dividend increase.

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

Very Positive

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

Positive

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

Very Positive

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 Price205.68

Price Trends

50DMA

246.93

Negative

100DMA

256.45

Negative

200DMA

279.39

Negative

Market Momentum

MACD

-11.90

Positive

RSI

20.61

Positive

STOCH

12.72

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 205.68 is below the 20-day moving average (MA) of 227.23, below the 50-day MA of 246.93, and below the 200-day MA of 279.39, indicating a bearish trend. The MACD of -11.90 indicates Positive momentum. The RSI at 20.61 is Positive, neither overbought nor oversold. The STOCH value of 12.72 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for ADP.

Automatic Data Processing Risk Analysis

Automatic Data Processing disclosed 1 risk factors in its most recent earnings report. Automatic Data Processing reported the most risks in the "Legal & Regulatory" category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Automatic Data Processing Peers Comparison

Overall Rating

UnderperformOutperform

Sector (61)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
ADP	76 Outperform	$82.82B	19.77	73.84%	2.46%	7.07%	8.32%
PAYX	73 Outperform	$31.76B	19.81	40.88%	3.70%	12.37%	-7.18%
Sector *	61 Neutral	$37.18B	12.37	-10.20%	1.83%	8.50%	-7.62%
RHI	59 Neutral	$2.39B	17.97	10.02%	8.65%	-7.27%	-43.88%
MAN	51 Neutral	$1.20B	-89.25	-0.64%	4.96%	-2.44%	-156.01%
TNET	48 Neutral	$1.63B	10.70	111.30%	1.81%	0.99%	-47.02%
NSP	43 Neutral	$834.93M	―	-9.79%	6.37%	3.19%	-86.21%

* Technology Sector Average

Performance Comparison

ADP

Automatic Data Processing

214.25

-90.30

-29.65%

NSP

Insperity

22.36

-61.77

-73.42%

MAN

ManpowerGroup

25.83

-27.67

-51.72%

PAYX

Paychex

91.23

-52.46

-36.51%

RHI

Robert Half

23.58

-30.61

-56.49%

TNET

TriNet Group

35.75

-36.27

-50.36%

Glossary

BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.Date of analysis: Jan 29, 2026