ADP Stock Forecast & Price Target

Automatic Data Processing is projected to experience a continued increase in EBIT margins, with an expected rise of approximately 50 basis points in fiscal year 2025 and 60 basis points in fiscal year 2026, building on an average expansion of 100 basis points from fiscal years 2022 to 2024. Revenue from the Employer Services segment is anticipated to grow between 6% and 7% in fiscal year 2025, with a longer-term growth outlook stabilizing around 6%. Furthermore, annual pricing increases have historically contributed around 150 basis points to growth, although a moderate contribution of about 100 basis points is expected moving forward.

Automatic Data Processing's PEO Services segment has been experiencing margin pressure due to zero-margin pass-throughs, which were highlighted in the recent quarter, indicating potential ongoing profitability challenges. Furthermore, despite a decline in market share among competitors such as white-labeled and regional payroll solutions, this competitive landscape remains an underlying concern for growth. Lastly, ADP's shares are currently trading at approximately one standard deviation above their long-term average P/E multiple, suggesting that valuations may be elevated compared to historical performance and could limit future upside potential.