ADP Stock Forecast & Price Target

Automatic Data Processing is projected to see a steady increase in EBIT margin, with an anticipated rise of approximately 50 basis points in fiscal year 2025 and 60 basis points in fiscal year 2026, following an average expansion of around 100 basis points from fiscal years 2022 to 2024. Additionally, revenue from Employer Services is forecasted to grow between 6% and 7% in fiscal year 2025, stabilizing to approximately 6% in the long term, bolstered by consistent pricing increases over the past few years that contributed nearly 150 basis points of growth previously. This combination of improving margins and robust revenue growth potential supports a favorable outlook for Automatic Data Processing's financial performance in the coming years.

The analysis highlights that Automatic Data Processing's PEO Services segment is under significant pressure due to a decline in margins attributed to zero-margin pass-throughs, indicating operational inefficiencies. Furthermore, despite overall market shifts, white-labeled solutions and independent payroll providers have retained some market share, suggesting potential competition challenges that could hinder ADP's growth. Additionally, the company's shares are currently trading approximately one standard deviation above their long-term average P/E multiple, with an elevated PEG ratio reflecting a potentially overvalued stock in relation to its growth prospects.