ADP Stock Forecast & Price Target

Automatic Data Processing is projected to achieve an increase in EBIT margins by approximately 50 basis points in fiscal year 2025 and 60 basis points in fiscal year 2026, following an average growth of around 100 basis points from fiscal years 2022 to 2024. The company’s Employer Services revenue is anticipated to grow by 6-7% in fiscal year 2025, with a longer-term expectation of approximately 6% growth. Additionally, recent annual pricing increases have contributed nearly 150 basis points to revenue growth in prior years, with expectations of closer to 100 basis points from pricing increases going forward.

Automatic Data Processing's PEO Services segment is experiencing margin pressures due to zero-margin pass-throughs, which were evidenced by a decline in margins last quarter. The company faces increasing competition from white-labeled solutions, regional payroll providers, and in-house solutions, which collectively represent a risk to market share. Finally, ADP's current valuation metrics, specifically its price-to-earnings ratio trading approximately one standard deviation above the long-term average, alongside an elevated PEG ratio, indicate potentially overstretched valuation compared to historical norms.