ADP’s Price Target Raised at Mizuho Securities

Automatic Data Processing, Inc. (NASDAQ:ADP) is a leading provider of human resource and payroll solutions. The company offers a range of services, including Human Capital Management (HCM), which has seen strong demand. ADP competes with other major players in the industry, such as Paychex and Workday, but continues to maintain a strong market position.

On January 29, 2025, ADP reported its fiscal second-quarter earnings, showcasing a robust financial performance. The company achieved earnings per share (EPS) of $2.35, surpassing the estimated $2.30. This performance underscores ADP's strong position in the market, as highlighted by the participation of analysts from prominent financial institutions during the earnings call.

ADP's revenue for the quarter reached approximately $5.05 billion, exceeding the estimated $4.97 billion. This represents an 8% increase compared to the same period last year, reflecting the company's ability to meet and exceed market expectations. The company also highlighted record client satisfaction, which is crucial for sustaining growth.

The company's financial metrics provide further insight into its performance. ADP has a price-to-earnings (P/E) ratio of 32.14, indicating the price investors are willing to pay for each dollar of earnings. The price-to-sales ratio is 6.33, and the enterprise value to sales ratio is 6.43, reflecting the value placed on each dollar of sales.

ADP's financial health is also evident in its debt-to-equity ratio of 0.84, suggesting a balanced approach to financing its assets. The current ratio of 1.18 indicates the company's ability to cover short-term liabilities with short-term assets. With an earnings yield of 3.11%, ADP provides a solid return on investment for shareholders.

Automatic Data Processing (NASDAQ:ADP) shares rose more than 3% intra-day today after the company exceeded expectations in its second-quarter fiscal 2025 results, driven by robust demand for human capital management solutions and an uptick in client funds interest revenue. The company reported adjusted earnings per share of $2.35, outpacing analyst projections of $2.30. Revenue climbed 8% year-over-year to $5.05 billion, surpassing the anticipated $4.97 billion, with organic constant currency growth also reaching 8%.

Net earnings increased 10% to $963 million, while adjusted EBIT rose 11% to $1.3 billion. The adjusted EBIT margin improved by 60 basis points, reaching 25.2%. Despite the strong financial performance, ADP’s stock dipped slightly by 0.1% following the earnings announcement.

The company maintained its full-year fiscal 2025 outlook, expecting revenue growth between 6% and 7%, adjusted EBIT margin expansion of 30 to 50 basis points, and adjusted diluted EPS growth in the range of 7% to 9%.

Automatic Data Processing, Inc. (NASDAQ:ADP) is a prominent player in the human resources and payroll services industry. The company is known for its innovative solutions in HR, talent management, time management, benefits, and payroll. ADP's competitors include companies like Paychex and Workday, which also offer similar services. ADP's focus on enhancing work environments is evident in its consistent dividend payouts, such as the recently announced quarterly dividend of $1.54 per share, scheduled for April 1, 2025.

ADP's financial metrics provide insight into its market position. The company's price-to-earnings (P/E) ratio of 31.51 indicates that investors are willing to pay $31.51 for every dollar of earnings, reflecting confidence in ADP's profitability. The price-to-sales ratio of 6.21 shows the value investors place on each dollar of sales, while the enterprise value to sales ratio of 6.54 suggests a strong overall valuation relative to sales.

The enterprise value to operating cash flow ratio of 27.43 highlights ADP's valuation in relation to its cash flow from operations. This ratio is crucial for understanding how efficiently the company generates cash from its core business activities. ADP's earnings yield of 3.17% represents the percentage of each dollar invested that was earned by the company, providing a measure of its profitability.

ADP's debt-to-equity ratio of 1.62 indicates a balanced approach to financing, with a mix of debt and equity used to fund its operations. This ratio helps assess the company's financial leverage and risk. Additionally, ADP's current ratio of 3.75 suggests a strong ability to cover short-term liabilities with short-term assets, indicating good liquidity.

On January 13, 2025, David Foskett, ADP's Corporate Vice President, sold 1,067 shares of common stock at approximately $286.15 each. Despite this sale, Foskett still holds around 6,140 shares, as highlighted by the SEC filing. This transaction reflects individual executive decisions and does not necessarily indicate a change in the company's overall financial health or strategy.

Mizuho Securities' analysts lifted their price target for ADP (NASDAQ:ADP) to $285.00 from the previous $255.00. Despite maintaining a Buy rating, the analysts highlighted ADP's progress in narrowing the gap in organic growth compared to disruptive peers in the Human Capital Management (HCM) sector.

While these disruptive players still outpace ADP in growth, the difference in their organic growth rates has reached its lowest point in years, indicating enhanced execution on ADP's part.

In terms of valuation, the analysts noted that ADP currently trades below its historical median price-to-earnings (P/E) ratio discount in comparison to similar companies in the business and information services field. However, analysts believe that ADP should command a smaller discount given its improved organic growth performance.