ADP Stock Study (5-26-26)

Posted by Mark on June 5, 2026 at 07:13 | Last modified: May 26, 2026 08:37

I recently did a stock study on Automatic Data Processing Inc. (ADP, $225.31).

M* writes:

     > Automatic Data Processing, or ADP, is a global, cloud-based human capital
     > management provider offering payroll, compliance, talent management,
     > benefits administration, and retirement services. The firm also provides
     > HR outsourcing services, including professional employer organization,
     > or PEO, offerings, enabling clients to reduce HR overhead. Its broad
     > suite serves customers of all sizes across diverse sectors, and the firm
     > holds large market shares in its core markets. As of fiscal 2025, ADP
     > counts over 1.1 million clients and manages payroll for more than
     > 42 million workers across 140 countries.

Over the past decade, this large-size company grows sales and EPS at annualized rates of 6.4% and 13.6%, respectively (fiscal year ends Jun 30). Lines are mostly up, straight, and parallel except for an EPS dip in ’18. Value Line (VL) gives a perfect Earnings Predictability score of 100. Shares outstanding decrease 11.0% (1.3%/year).

Over the past decade, PTPM leads peer and industry averages while increasing from 19.2% to 25.8% (’25) with a last-5-year mean of 24.3%. ROE leads peer and industry averages while increasing from 32.9% to 69.1% (’25) with a last-5-year mean of 71.1% [shareholder equity consistently positive with choppy—5 (4) up (down) years—3.6%/year growth]. Debt-to-Capital is greater than peers but less than the industry while increasing from 30.9% to 59.4% (’25) with a last-5-year mean of 47.7%.

Quick Ratio is only 0.13 but Interest Coverage 13.5 per M* who assigns “Narrow” Economic Moat, “Standard” rating for Capital Allocation, and a C grade for Financial Health (per BetterInvesting® website). VL rates the company A+ for Financial Strength.

With regard to sales growth:

• YF gives YOY ACE 6.2% and 5.9% for ’26 and ’27 (based on 16 analysts).
• Zacks gives YOY ACE 6.6% and 5.5% for ’26 and ’27, respectively (6 analysts).
• VL projects 4.8% per year from ’25-’30.
• CFRA projects 6.4% YOY and 5.8% per year for ’26 and ’25-’27, respectively.
• M* gives 2-year ACE of 6.5% per year and projects 5-year CAGR of 5.8% in Equity Report.

My 4.0% annualized forecast is below the range.

With regard to EPS growth:

• MarketWatch gives ACE 9.4% and 9.4% per year for ’25-’27 and ’25-’28, respectively (based on 21 analysts).
• Nasdaq.com gives ACE 8.7% and 6.1% per year for ’26-’28 and ’26-’29 [8 / 7 / 1 analyst(s) for ’26 / ’28 / ’29].
• Finviz gives 5-year annualized ACE of 10.0% (7).
• Argus projects 5-year CAGR of 9.0%.
• YF gives YOY ACE 10.6% and 10.1% for ’26 and ’27, respectively (16).
• Zacks gives YOY ACE 10.6% and 9.3% for ’26 and ’27, respectively (7).
• VL projects 6.2% per year from ’25-’30.
• CFRA projects 10.4% YOY and 9.2% per year for ’26 and ’25-’27 along with 3-year CAGR of 9.0%.
• M* gives long-term 8.8%/year ACE and projects 5-year CAGR of 8.7% (lesser of adjusted/GAAP) in Equity Report.

My 6.0% forecast is below the long-term-estimate range (mean of five: 8.6%). Initial value is ’25 EPS of $9.98/share rather than 2026 Q3 EPS of $10.72 (TTM).

My Forecast High P/E is 27.0. Over the past 10 years, high P/E ranges from 27.4 in ’17 to 38.7 in ’18 with a last-5-year mean of 32.7 and last-5-year-mean average P/E of 28.3. I am below the range.

My Forecast Low P/E is 17.0. Over the past 10 years, low P/E ranges from 18.1 in ’20 to 27.5 in ’18 and ’22 with a last-5-year mean of 23.9. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $169.70 is default based on initial value from above: 24.7% less than previous close and 9.8% less than 52-week low.

Over the past 10 years, Payout Ratio (PR) ranges from 57.9% in ’22 to 68.9% in ’18 with a last-5-year mean of 59.5%. I am forecasting below the range at 57.0%.

These inputs land ADP in the HOLD zone with a U/D ratio of 2.4. Total Annualized Return (TAR) is 12.0%.

PAR (using Forecast Average—not High—P/E) of 8.1% is less than I seek for a large-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on 69 studies done in the past 90 days (my study and 27 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 5.5%, 6.1%, 29.5, 20.8, and 59.5% respectively. I am lower across the board. VL projects a future average P/E of 22.0 that is less than MS (25.2) and equal to mine.

MS high / low EPS are $14.00 / $10.16 versus my $13.36 / $9.98 (per share). My high EPS is less due to a lower growth rate. VL (M*) high EPS of $13.50 ($15.19) is in the middle (higher than both).

MS LSPF of $180.00 implies a Forecast Low P/E of 17.7: less than the above-stated 20.8. MS LSPF is 14.8% less than the default $10.16/share * 20.8 = $211.33 resulting in more conservative zoning. MS LSPF exceeds mine by 6.1%, however.

MOS is robust in the study because my inputs are near or less than historical/analyst/MS averages/ranges. Also supportive of the MOS is MS TAR exceeding mine by 4.4% per year.

With regard to valuation, PEG is 2.1 and 3.3 per M* and my projected P/E, respectively: somewhat overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is a bit low at 0.74. “Quick and Dirty” DCF method has stock 44% overvalued [due to the dividend payout but still a headscratcher] while M* (CFRA) reports the stock at a 9% discount (overvalued by 11%).

Per U/D, ADP is a BUY under $217/share. BetterInvesting® TAR criterion is met [360.7 / ((12.77 / 100 ) +1 ) ^ 5] ~ $197 given a forecast high price ~$361.

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