ADP (ADP) Last Update 10/29/21
Related: IBM PAYX
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Trefis Price
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Potential upside & downside to trefis price

ADP Company


  1. Payroll Processing constitutes 62% of the Trefis price estimate for ADP's stock.
  2. HR Outsourcing & Other Services constitute 24% of the Trefis price estimate for ADP's stock.
  3. Client Funds Interest constitutes 14% of the Trefis price estimate for ADP's stock.


Recovery from the pandemic

The shares of Automatic Data Processing are currently trading at 20% above pre-Covid levels – gaining almost $15 billion in market capitalization despite a slow economic recovery.

Investors have been optimistic on the stock by rewarding the expanding top-line and stable margins, but the unemployment rate of 4.8% in September 2021 remains higher than the 3.5% observed in February 2020.

Notably, the unemployment rate will reach pre-pandemic levels as economic activity improves and restrictions on education, hospitality, and travel sectors are eased further.

ADP’s two operating segments, Employer Services and Professional Employer Organization, contribute 70% and 30% of total revenues, respectively.

Employer Services segment provides human capital management products including payroll, workforce management, benefits distribution, etc., and the PEO segment provides similar services to clients when an employee working for a client is co-employed by ADP (known as a worksite employee).

The company’s top line observed an annual growth of 5% from $11.6 billion in 2016 to $15 billion in 2021. Notably, the growth rate for the PEO segment has been much stronger at 9% p.a. (per annum) compared to Employer Services’ 2% p.a. in the last five years.


Below are key drivers of ADP's value that present opportunities for upside or downside to the current Trefis price estimate for ADP:

Payroll Processing

  • Number of Clients Served: We currently forecast the number of clients served by ADP's Payroll Processing division to increase going forward from an estimated 810,000 in 2019 to 960,000 by the end of the Trefis forecast period. Increase in clientele is likely to occur because of improving economic conditions and ADP's efforts in acquiring clients through acquisitions and overseas expansion. However, there could be a 6% downside to the Trefis price estimate if ADP's clients grow to only 850K or lower.

  • Payroll Processing EBITDA Margin : The EBITDA margin for ADP's payroll processing business has decreased marginally from 20.1% in 2009 to 18.1% in 2013 before picking up to 23.8% in 2017. EBITDA margin declined to 18.9% in 2018, as operating expenses grew at a faster pace as compared to revenues.However, this figure recovered to 23.9% in 2019 primarily due to operating efficiencies. We forecast the EBITDA margin to increase to over 25% by the end of the Trefis forecast period, on account of ADP's ability to obtain sustained price increases from its clientele, coupled with improved operational efficiency. There could be a 7% upside to the Trefis price estimate if ADP's payroll processing EBITDA margin increases to 28% by the end of the forecast period.

Client Funds Interest

  • Average Interest Rate: Due to the U.S. Federal Reserve Bank's quantitative easing, Average Interest Rate for ADP has fallen from 4.0% in 2009 to 2.2% in 2019. However, as the Fed will continue to increase its interest rates, we forecast ADP's Average Interest Rate to increase to over 2.35% by the end of our forecast period. However, there could be a 5% upside to our price estimate if ADP's Average Interest Rate increases to about 3.2%.

For additional details, select a driver above or select a division from the interactive Trefis split for ADP at the top of the page.


ADP offers payroll processing to businesses of varying sizes around the globe. Payroll processing includes the paper and electronic distribution of employee compensation along with the processing of tax withholdings and other employee contributions. Businesses save time and resources by outsourcing their payroll processing needs to companies like ADP.


Number of Payroll Accounts

The number of payroll accounts managed by ADP is an important driver of ADP's revenues. As on June 30, 2019, ADP had more than 810,000 payroll clients.

Account Types and Fee Per Client

The company divides its US payroll business into three segments based on the number of employees in an account: National Accounts (1000+ employees), Major Accounts (50-999 employees) and Small Business Accounts (<50 employees). The Fee Per Client is an important metric as it shows how ADP's pricing power and the competitive scenario translate into fee per client for ADP.


Declining unemployment rates in the U.S.

During the recession, unemployment rates in the U.S. had increased drastically as many businesses laid off employees to reduce costs. The U.S. unemployment rate peaked at 10% in October 2009. However, driven by recovery in the U.S. economy, businesses have began hiring again. Post October 2009, the unemployment rate has been declining month-on-month. In August 2019, the unemployment rate remained at 3.7%, a multi-year low. (Link) Declining unemployment rates are beneficial to ADP since it will have a positive impact on its revenue and number of clients.

Interest rate environment to normalize

Interest rates in the U.S. have been low due to the Quantitative Easing program undertaken by the government in order to promote growth in the economy. As the U.S. economy started registering sustained growth, the Fed ended its Quantitative Easing program in October 2014. Subsequently, Fed raised interest rates in December 2015 for the first time since 2006. Further, the Fed raised its interest rates by 75 basis points in 2017 and by 100 basis points in 2018. However, the Fed reduced interest rate by 50 basis points in 2019 in a bid to boost economy.

Complexities in the Affordable Care Act will force businesses to take advise from professionals

The recently introduced Affordable Care Act in the U.S. has certain complexities that will force businesses to take advice from professionals. ADP has proactively taken steps and has begun to offer solution that will help clients navigate through these complexities. As more businesses look for such solutions, ADP's clients will increase.