RBC Capital reiterates Sector Perform on ADP stock ahead of key quarter

Investing.com - RBC Capital maintained its Sector Perform rating and $315.00 price target on ADP (NASDAQ:ADP), currently trading at $301.87, as the payroll processing company approaches its most significant bookings quarter. According to InvestingPro analysis, ADP appears fairly valued at current levels.

The firm noted that while ADP has solid sales pipelines heading into the crucial period, with revenue growing at 6.82% over the last twelve months, this positive indicator is partially offset by weakness in international bookings, where the sales cycle has elongated.

RBC expects ADP to achieve bookings growth of 5-6%, landing in the middle of the company’s 4-7% guidance range, while anticipating pays per control growth of approximately 1% and a modest client retention decline of 30 to 10 basis points. With impressive gross profit margins of 48.34%, ADP maintains strong operational efficiency. Get deeper insights with InvestingPro, which offers 15+ additional key metrics and analysis tips.

For the Professional Employer Organization (PEO) segment, the firm projects worksite employee (WSE) growth of 2-3%, with higher interest rates providing a favorable environment for the company’s Client Funds Interest revenue stream.

Based on these factors, RBC forecasts ADP will deliver 5-6% revenue growth and 8-10% earnings per share growth in fiscal year 2026, slightly below the company’s mid-term guidance but in line with current consensus estimates.

In other recent news, Automatic Data Processing (ADP) has been the focus of several analyst reports and company updates. The company recently announced new midterm targets, projecting revenue growth of 6-7% and earnings per share growth of 9-11%, alongside plans for margin expansion. Mizuho (NYSE:MFG) raised its price target for ADP to $332, maintaining an Outperform rating, following the company’s investor day where these targets were presented. BMO Capital initiated coverage of ADP with a Market Perform rating and a $340 price target, highlighting the company’s durable earnings growth and healthy balance sheet. Meanwhile, RBC Capital maintained a Sector Perform rating with a $315 price target, and Stifel reiterated a Hold rating with a $305 price target, noting ADP’s updated growth strategy. The ADP National Employment Report indicated the U.S. private sector shed 33,000 jobs in June, with declines in professional services and education partially offset by gains in leisure and hospitality. ADP continues to pursue global expansion through acquisitions and partnerships, investing in artificial intelligence and data capabilities to enhance its platform. These developments reflect ADP’s strategic focus on innovation and growth amidst a changing economic landscape.

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