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Automatic Data Processing (NASDAQ:ADP), a prominent player in the Professional Services industry with a market capitalization of $126 billion, received a reiterated Hold rating and $305.00 price target from Stifel on Friday, following the company’s investor day held Thursday where it unveiled updated three-to-four-year financial targets.
The payroll and human resources giant projected revenue growth of 6-7% CAGR, margin expansion of 50-75 basis points per year, and earnings per share growth of 9-11% CAGR. These targets, while below ADP’s prior plan and recent performance, exceed fiscal 2026/2027 consensus estimates of 5.5% revenue growth, 35 basis points margin expansion, and 9% annual EPS growth. According to InvestingPro data, ADP has demonstrated strong execution with current revenue growth of 6.82% and impressive gross profit margins of 48.34%.
ADP’s Employer Services segment is expected to grow at 6%, aligning with current trends, while its Professional Employer Organization segment is projected to grow 6-8%, below its trailing four-year compound annual growth rate. The company’s targets assume unchanged macroeconomic and employment conditions, including pay-per-control growth of less than 50 basis points year-over-year and worksite employee growth of 2-3% year-over-year.
The company’s artificial intelligence commentary focused on applications in sales, service, and research and development, with sales use-cases highlighted as particularly interesting given sales productivity’s role as a secular growth driver. Stifel noted these AI initiatives could influence person, time, pitch, and product aspects of ADP’s business.
ADP stock currently trades at approximately a 70% premium to the equal-weight S&P 500, compared to its historical trend of 60-65%, which Stifel considers fully valued but consistent with double-digit total returns from high-single-digit EPS growth plus a 2% dividend yield, along with the stock’s defensive characteristics.
In other recent news, Automatic Data Processing Inc (ADP) reported its fiscal third-quarter 2025 earnings, which exceeded expectations with earnings per share of $3.06 and revenue of $5.55 billion, surpassing analyst forecasts. The company also announced a public offering of senior notes valued at $1 billion with a 4.75% interest rate, aimed at refinancing existing debt and supporting general corporate purposes. At the investor day in New York City, Mizuho (NYSE:MFG) raised its price target for ADP to $332, maintaining an Outperform rating, citing strong medium-term targets for revenue and earnings per share. Conversely, UBS lowered its price target to $315, maintaining a Neutral rating due to revised growth expectations and valuation concerns.
ADP’s latest National Employment Report indicated the U.S. private sector added 37,000 jobs in May, with a 4.5% increase in annual pay. This report, based on payroll data from over 25 million U.S. employees, highlighted slower job growth and sector-specific variations. Additionally, ADP’s Professional Employer Organization (PEO) segment adjusted its mid-term growth target to 6-8%, down from previous forecasts, contributing to a tempered outlook. Despite these adjustments, ADP’s competitive positioning in the Human Capital Management market remains strong, with a 15% market share of an expanded $180 billion total addressable market.
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