ADP Stock Forecast & Price Target

Automatic Data Processing (ADP) is projected to experience significant improvements in its EBIT margin, with an expected increase of approximately 50 basis points in FY2025 and 60 basis points in FY2026, following a robust 100 basis points of expansion from FY2022 to FY2024. Additionally, the company's Employer Services revenue is anticipated to grow between 6-7% in FY2025, maintaining a longer-term growth rate around 6%. Furthermore, pricing strategies have historically contributed around 150 basis points to growth in the past few years, with expectations for a stabilization at approximately 100 basis points moving forward.

Automatic Data Processing's PEO Services segment is currently experiencing declining margins due to pressure from zero-margin pass-throughs, which poses a challenge to profitability. Furthermore, despite a historical decrease in market share for traditional payroll solutions, these competitors continue to represent a notable portion of the U.S. market, indicating ongoing competitive pressures. Additionally, ADP's shares are trading approximately one standard deviation above their long-term average price-to-earnings multiple, reflecting an elevated PEG ratio that suggests potential overvaluation in the current market environment.