ADP Stock Forecast & Price Target

Automatic Data Processing anticipates an increase in EBIT margin by approximately 50 basis points in FY2025 and 60 basis points in FY2026, building on an average expansion of 100 basis points from FY2022 to FY2024. The company's Employer Services revenue is projected to grow between 6% and 7% for FY2025, with long-term growth expected to stabilize around 6%. Additionally, annual pricing increases have contributed approximately 150 basis points of growth in recent years, with expectations for a continued contribution of about 100 basis points moving forward.

The negative outlook on Automatic Data Processing's stock is primarily driven by declining margins in the PEO Services segment, pressured by zero-margin pass-throughs, indicating a significant challenge in maintaining profitability. Additionally, despite a reduction in market share for white-labeled solutions and independent providers over the past five years, reliance on these segments could hinder future growth potential in a competitive landscape. Furthermore, ADP's shares are trading approximately one standard deviation above their long-term average P/E multiple, coupled with an elevated PEG ratio, suggesting potential overvaluation compared to its historical performance.