ADP Stock Forecast & Price Target

Automatic Data Processing is projected to see a steady increase in EBIT margins, with a forecasted rise of approximately 50 basis points in fiscal year 2025 and 60 basis points in fiscal year 2026, following an average expansion of 100 basis points from fiscal years 2022 to 2024. The Employer Services segment is expected to experience revenue growth of 6-7% in fiscal year 2025 and maintain a longer-term growth rate closer to 6%, supported by consistent annual pricing increases that have historically contributed to revenue growth by nearly 150 basis points. Overall, the combination of margin expansion and robust revenue growth in the Employer Services sector underpins a positive outlook for Automatic Data Processing's stock.

Automatic Data Processing's Professional Employer Organization (PEO) Services segment is experiencing significant margin pressure due to zero-margin pass-throughs, indicating operational inefficiencies. Additionally, despite a decline in market share for competing white-labeled solutions and independent payroll providers over the past five years, ADP remains vulnerable to this competitive landscape, which could further impact its growth potential. Moreover, ADP's stock is currently trading approximately one standard deviation above its long-term average price-to-earnings (P/E) multiple, with an elevated PEG ratio that suggests potential overvaluation relative to its peers and market performance.