Is The Market Pricing ADP Inc. Fairly?

by Trefis Team
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Automatic Data Processing (NYSE: ADP), is a leading global provider of Human Capital Management (HCM) solutions.  During the recent annual earnings ADP’s net sales rose to $13.3 billion up 8% from the prior-year, with adjusted earnings per share at $4.35. This growth has been driven by the strength of their business model, increase in worldwide new business bookings, and an increase in their employer Services client revenue retention. The company has been client-centric focused and their drive to meet the evolving needs of the global HCM market through leading-edge product and unparalleled service is delivering clear and positive results, that are also contributing to an improvement in retention and a sustained acceleration in their new business bookings.  ADP’s recent acquisition of Celergo (a leading provider of global payroll management services), too, has strengthened ADP’s international payroll offerings with a strong proprietary cloud-based technology platform and will facilitate greater integration and alignment with their businesses in FY 2019 and beyond.

We anticipate the company to post progressive results in FY2019 as the management remains focused on the strategic initiatives to create long-term shareholder value by balancing top line revenue growth and strong margins to drive EPS growth. Our price estimate of $152 is dependent on a FY19 sales forecast of $14.2 bn, up 6.3% from $13.3 bn last fiscal. We also expect ADP’s net income margin to be ~16% from 12.2% in FY 2018.  We expect a Price-to-Earnings multiple of 29.77 and an average share count of 443 Mn, giving a share price estimate of $152, roughly 7% above its current market price.
Our revenue estimate of $14.2 Bn for FY2019 is arrived at by projecting revenues for the top two major segments of the Company: Employer service and PEO Service that contribute to the total net sales, and following historical growth trends and the percentage contribution of these segment to total to the company’s top line.

The P/E multiple is also forecast taking into account the historical data and its likely trend. Detailed steps to arrive at our price estimate are outlined in our interactive dashboard Is ADP Inc. Fairly Priced? You can modify the key value drivers to see how they impact the company’s revenues, bottom line, and valuation.


Like our charts? Explore example interactive dashboards and create your own.
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