How Could ADP’s Revenue and Ebitda Grow Over The Next 3 Years?

by Trefis Team
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Automatic Data Processing (NYSE: ADP) has been reporting healthy performance in the last few years. In the latest 3 years the company’s revenue grew from 6.5% in FY 2015, to 8% in FY 2018, 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 years to come.

ADP’s margins have also been improving with growth reported in each of the years. The company has ensured its structure has remained strong, and its operations have continued to be efficient. Much of the growth in the metric has been a result of strong performance across the top two major segments of the Company: Employer service and PEO Service that contribute to the majority of the total net sales.

We have created an interactive dashboard detailing ADP’s revenue and EBITDA breakdown for the next three years. You can click here for our interactive dashboard on What Is ADP’s Revenue And EBITDA Breakdown? to view how the different segments will contribute to the company’s growth.

Factors determining ADP’s Revenue & EBITDA Growth – 

As per our analysis, and in line with the guidance provided by the company, we believe that the company will post progressive results all through to FY 2021 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. For the next 3 years, we anticipates ADP’s revenue to grow from $13.3 Bn in FY2018 to $16.4 Bn by FY2021, and adjusted diluted earnings per share to grow between 15% to 17% y-o-y.

Going forward, ADP has aggressive growth strategies that will enable it to maintain its dominance in the market.  ADP’s PEO Services business has been ever expanding as more companies are exploring the option of using HR outsourcing.  As the popularity among businesses to outsource their HR services keeps rising, this figure is likely to grow even further by 2021 and beyond. One of the important drivers for the growth in ADP’s client base has been brought about by the implementation of the Affordable Care Act (ACA). The adoption of ADP’s products has been increasing significantly post the Act, especially since larger employers  (+1,000 employees) find it easier to outsource the job to a third party who can help them implement ACA solutions for their employees.

While ADP’s PEO services business has driven much of the top line growth in the last few years, payroll processing continues to be its core business, contributing the largest portion of its top-line. With a large and growing customer base and a high retention rate of clients (over 90%), the company is in a strong position to generate sustained revenue growth in this segment. Based on the company’s guidance, we estimate ADP’s total number of payroll processing clients to continue to grow consistently at a 5% rate.

ADP continues to execute on their transformation initiatives, and remains focused on enhancing their product, service, and operations to maximize value for their clients and shareholders alike. Looking ahead, therefore, we believe that driven by the above trends, the company will drive steady growth this coming year.

 

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