ADP’s Grows Beyond Payrolls Lifting Stock Value to $62.50

by Trefis Team
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ADP (NASDAQ:ADP), the leading provider of payroll services and human resource outsourcing in the U.S., is making move to modernize its services and expand the range of services it provides to consumers. ADP handles payroll for one in six working Americans and competes with other established players like Paychex (NASDAQ:PAYX) as well as startups like Workday.

We currently have a $62.50 Trefis price estimate for ADP, about 15% above the current market price.

Expanding Beyond Payroll

We earlier discussed that ADP is bringing its popular payroll management platform for small businesses to the Android smartphone operating platform through a suite of mobile apps. (See ADP Targets Small Business Clients through Android Payroll Platform)

While Payroll Processing is the largest value driver for ADP accounting for over 85% of our price estimate for the firm, ADP in recent years has built out a suite of non-payroll services that include human resources, recruiting and talent management, background checks and benefits administration.

ADP’s CTO Michael Capone said that the non-payroll business is growing at about twice the rate of the payroll business and there are opportunities for revenue growth inside the client’s businesses. The firm has started to bump up its offerings and recently bought AdvancedMD, practice management services firm for doctors. Last July, ADP bought Workscape which sells a high-end benefits administration platform.

The firm is also planning to upgrade its entire suite of on-demand services to give them a more up-to-date, Web 2.0-style interface. “People expect a better experience these days. They expect to get the Web 2.0-Facebook type experience when they come to work,” said Capone. ((ADP Wants More Than Your Payroll,

We currently forecast ADP’s fee per employee for Major payroll accounts to increase from ~$210 in 2010 to $280 by the end of the Trefis forecast period. However, the growth in fee per employee could be much higher if ADP successfully leverages its client base while rolling out expanded non-payroll services and is able to generate higher user adoption with its new and improved interface to be released in October.

In a scenario where ADP is able to charge higher fee per employee across its client types driven by above factors, there could be significant upside to our $62.50 Trefis price estimate for ADP. Modify the forecast chart above to see the impact of changes in this driver to our price estimate.

See our full analysis of ADP.

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