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On Thursday, Stifel analysts maintained a Hold rating on ADP (NASDAQ:ADP) shares, keeping the price target steady at $305.00. According to InvestingPro data, ADP is currently trading above its Fair Value, with analyst targets ranging from $281 to $325. The firm’s analysis followed ADP’s first-quarter results, which slightly exceeded the non-provided quarterly guidance. ADP reported an 8% increase in organic constant currency revenue and a 10% rise in earnings per share (EPS). Pay per control (PPC) grew by 1%, which aligns with the lower end of the full-year guidance of 1-2% and represents a slight deceleration from the recent trend of 2%.
ADP’s second-quarter bookings were described as "solid," and the company’s pipelines remain strong. The firm has maintained its full-year 2025 guidance, which was first set in June, predicting a revenue increase of 6-7%, an EBIT margin improvement of 30-50 basis points, and an EPS growth of 7-9%. The only revision in the forecast was an additional $25 million in client-fund interest to account for higher rates and fund balances.
The macroeconomic environment was characterized as stable by Stifel, noting that ADP’s scale could serve as a positive indicator for the industry at large and potentially reveal market share losses for competitors who experience further deceleration. InvestingPro analysis shows ADP maintains strong financial health with impressive gross profit margins of 48.2% and operates with moderate debt levels. As a prominent player in Professional Services, the company has demonstrated consistent performance with revenue growth of 7.1% over the last twelve months. In the down-market segment, hiring continues with new business formation surpassing pre-pandemic levels and bankruptcies remaining stable. The mid-market segment is performing solidly with strong Human Resource Outsourcing (HRO), and no alarming signs were noted in the up-market segment, which is the smallest for ADP.
PPC’s same-store hiring showed a 1% increase, at the lower end of the full-year guidance, with performance consistent across all segments. The analysts commented that the U.S. labor markets appear to remain strong.
Stifel also noted that ADP’s stock is trading at approximately a 75% premium compared to an equal-weight S&P 500, which is higher than the 10-year average of 60-65%. They believe the stock is fully valued, considering the expected high single-digit EPS growth and a 2% dividend. The analysts anticipate that the stock will trade defensively, especially if interest rates continue to stay elevated.
In other recent news, Automatic Data Processing (ADP) reported a 7% increase in revenue and a 12% rise in earnings per share, exceeding market expectations. This robust performance is credited to the successful acquisition of WorkForce Software (ETR:SOWGn) and solid results in the Employer Services and Professional Employer Organization segments. In light of these results, several analyst firms have adjusted their price targets for ADP. Mizuho (NYSE:MFG) increased the target to $321, Jefferies to $305, BofA Securities to $315, and TD Cowen to $290.
Moreover, ADP has seen changes in its executive team with Joseph DeSilva stepping into the role of Executive Vice President, North America and Chief of Operations, replacing John C. Ayala. The company has also forged a strategic partnership with Fiserv (NYSE:FI), which is seen as a significant move to cater to small and medium-sized businesses.
In the labor market, the ADP® National Employment Report™ reported an increase of 122,000 jobs in the U.S. private sector in December. These developments highlight the recent momentum in ADP’s business operations and future trajectory.
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