ADP Automatic Data Processing
A durable payroll toll road, but today’s price already assumes strong execution.
The business
ADP provides payroll, human-capital-management, tax, benefits, and compliance services to employers, earning recurring fees from a large installed customer base. It also benefits from interest income on client funds held before payroll and tax remittance. Demand is tied to employment levels and business formation, but the core service is mission-critical and highly recurring.
Quality gate · 91/100
Moat & management
| Moat | wide moat |
| Source | switching costs |
| Trajectory | stable |
| Management | excellent |
Payroll and HR administration are deeply embedded, compliance-sensitive workflows where errors are costly and switching vendors is disruptive. ADP also has scale advantages in compliance, distribution, data, and servicing, though competition from newer cloud HCM platforms prevents calling the moat widening.
Capital allocation has been disciplined, with high returns on capital, modest leverage, strong free-cash-flow conversion, and steady share reduction. Reinvestment needs are manageable and excess cash has generally been returned rationally.
Owner-earnings inputs
| Owner earnings (TTM) | 4.35B |
| Owner-earnings yield | 4.5% |
| Free-cash-flow yield | 5.0% |
| Growth used (normalized) | 7.0% |
| Market-implied growth (reverse DCF) | 7.5% |
| Terminal growth | 3.0% |
| Discount rate (hurdle) | 9.0% |
Projected owner earnings
| Yr | Owner earnings | Growth | PV |
|---|---|---|---|
| 1 | 4.65B | 7.0% | 4.27B |
| 2 | 4.96B | 6.7% | 4.18B |
| 3 | 5.28B | 6.4% | 4.08B |
| 4 | 5.61B | 6.1% | 3.97B |
| 5 | 5.93B | 5.9% | 3.86B |
| 6 | 6.26B | 5.6% | 3.74B |
| 7 | 6.60B | 5.3% | 3.61B |
| 8 | 6.93B | 5.0% | 3.48B |
| 9 | 7.25B | 4.7% | 3.34B |
| 10 | 7.57B | 4.4% | 3.20B |
| 11 | 7.89B | 4.1% | 3.06B |
| 12 | 8.19B | 3.9% | 2.91B |
| 13 | 8.48B | 3.6% | 2.77B |
| 14 | 8.76B | 3.3% | 2.62B |
| 15 | 9.02B | 3.0% | 2.48B |
Key risks
- Cloud-native HCM competitors pressure pricing or win larger accounts
- Employment downturns reduce pays-per-control and client-fund balances
- Regulatory or technology change lowers the value of outsourced payroll compliance
Catalysts
- Continued mid-single-digit revenue growth with margin expansion
- Higher interest income on client funds if rates remain structurally above the prior decade
Recent news
score · 8 articles
- Automatic Data Processing (ADP) Is Up 7.2% After Expanding US$9.2 Billion Credit Lines Has The Bull Case Changed?
- Jobless Claims Decreased Less Than Expected
- Stock Market News for July 2, 2026
- The Dow Just Had Its Best First Half Since 2021, but This Jobs Number Is Flashing Yellow
- Stocks Mostly Up Pre-Bell Ahead of Key Jobs Report
- Bitcoin, ETH, XRP Jump as Wall Street Sees Soft US Nonfarm Payrolls Data
- Bitcoin Recovers After Remarks From Fed's Warsh
- Gold extends gains on weak jobs data, lower oil prices
⚠ maintenance capex ≈ min(capex, D&A), capped at FCF · Price pays for ~8%/yr owner-earnings growth over 15y (reverse DCF); model credits 7%.