What Will Drive ADP’s Revenue And EBITDA Growth In 2016?

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ADP: Automatic Data Processing logo
ADP
Automatic Data Processing

ADP (NASDAQ:ADP) has reported 7-8% revenue growth over the last few years, fueled by higher demand for HR outsourcing and services in that period. HR outsourcing revenues have increased by over 15% in each of the last three years. Comparatively, payroll processing revenues have witnessed moderate single-digit growth in the last four years. In line with the trend over the previous years, we forecast ADP’s net revenues to grow by 8% in 2016, with growth primarily coming from HR outsourcing and services.

ADP2016_1Additionally, ADP’s cash operating expenses are likely to increase at the same rate as revenues, leading to a roughly flat operating margin over the previous year. According to our estimates, ADP’s adjusted EBITDA margin stood at just under 21% in 2015 and is likely to remain at around that level through 2016. It should be noted that the key contributor to the EBITDA growth is the corresponding increase in revenue, while the impact of changes in operating expenses is negligible for ADP.

ADP2016_2

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our full analysis for ADP.

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