ADP

Executive Summary

A 51-Year Dividend Aristocrat at a Rare Discount to Its Own History

Automatic Data Processing (ADP) trades at $221.84, near the low end of its 52-week range ($188-$330) after a sharp de-rating from the highs. Q3 FY2026 (reported Apr 29) delivered revenue of $5.94B, +7% YoY (6% organic constant-currency) with adjusted EPS of $3.37, +10%, beating the ~$3.30 consensus. Both segments grew 7% — Employer Services $4.04B (margin +130bps) and PEO Services $1.91B (margin -120bps on benefits pass-through) — while interest on client funds rose 14% to $404M on a $48.3B average balance at a 3.3% yield. Management raised FY2026 guidance to 6-7% revenue growth and 10-11% adjusted EPS growth ($11.01-$11.11). The dividend story anchors the thesis: ADP just declared its 51st consecutive annual increase to $6.80/share (~3.0% yield, ~61% payout), and returned $3.4B to holders in nine months ($1.9B dividends + $1.5B buybacks). At ~18-20x forward earnings the Aristocrat is reasonably valued, but a Hold Street consensus (avg target ~$265) and a slowing labor market keep this a durability-over-upside holding.

Fundamentals

Q3 FY2026 Snapshot — Revenue +7% YoY to $5.94B, adjusted EPS +10% to $3.37, with raised full-year guidance and 80bps of margin expansion.

Revenue (Q3'26)

$5.94B

+7% YoY · beat consensus

Adjusted EPS

$3.37

+10% YoY · beat ~$3.30 est

Employer Services

$4.04B

+7% YoY · margin +130bps

PEO Services

$1.91B

+7% YoY · margin -120bps

Client Funds Interest

$404M

+14% · $48.3B avg · 3.3% yield

Adj. EBIT Margin

30.2%

+80bps YoY

Dividend / Yield

$6.80

~3.0% yield · 51st straight raise

Forward P/E

~18x

Below 5-yr avg · ~61% payout

Quarterly Revenue Trend

$5.20B

Q4'25

$5.20B

Q1'26

$5.60B

Q2'26

$5.94B

Q3'26

Compounding Engine

Durable Mid-Single-Digit Growth Compounding into Double-Digit EPS and Dividends

+7%

Q3'26 Revenue Growth

6% organic constant-currency

+10%

Adjusted EPS Growth

Beat consensus for 4th straight quarter

51 yrs

Consecutive Dividend Raises

Dividend Aristocrat · ~13% 10-yr CAGR

Jul 2025

Q4 FY2025

Adjusted EPS $2.26 beat $2.22; 17th straight EPS beat. FY2025 closed with mid-single-digit revenue growth and steady margin expansion.

Nov 12, 2025

51st Consecutive Dividend Raise

Board approved a 10% increase to $1.70/quarter ($6.80 annualized), extending the Aristocrat streak; payable Jan 1, 2026.

Jan 2026

Q2 FY2026

Adjusted EPS $2.62 beat $2.58 (+1.6% surprise); revenue and bookings momentum supported by AI-driven efficiency and Lyric HCM enterprise traction.

Apr 29, 2026

Q3 FY2026 Beat + Guide Raise

Revenue $5.94B (+7%), adj EPS $3.37 (+10%), adj EBIT margin 30.2% (+80bps). Raised FY26 to 6-7% revenue, 10-11% EPS growth, EPS $11.01-$11.11.

May 2026

Labor Market Softening

ADP NER showed +109K private jobs in April (pay +4.5%) but weekly Pulse data slowed to ~36K/week in May — a watch item for new-business bookings.

Earnings & Signals

Forward Estimates, Surprises & Insider Activity

Forward Earnings Estimates

FY+1 EPS Consensus$11.06 (FY2026e)

FY+2 EPS Consensus$12.05 (FY2027e)

PEG Ratio1.8

Forward P/E~18x

EPS Revisions (90d)↑9 ↓3 (Net upward following the Q3 beat and raised full-year guidance, tempered by labor-market caution.)

Guidance AccuracyExcellent — ADP has met or beaten guidance consistently; FY2026 guide raised to 6-7% revenue growth, +70-80bps adj EBIT margin and 10-11% adjusted EPS growth ($11.01-$11.11).

Earnings Surprise Track Record

Q4'25 Est: $2.22 Act: $2.26 +1.8%

Q1'26 Est: $2.44 Act: $2.49 +2.0%

Q2'26 Est: $2.58 Act: $2.62 +1.6%

Q3'26 Est: $3.30 Act: $3.37 +2.1%

Beat RateBeat on adjusted EPS in 4 of last 4 quarters (17+ consecutive overall)

Insider Activity (90 Days)

Net Buying/SellingNet selling (modest)

Sell/Buy RatioSell-tilted

Neutral

Insider activity is modestly sell-tilted over the trailing 90 days, primarily routine option-related and 10b5-1 dispositions typical of a mature large-cap. No notable open-market buying, but flows are mechanical rather than a directional signal.

Peer Comparison

Relative Valuation vs. Competitors

Company	Fwd P/E	Div Yield	Payout Ratio	Rev Growth
Automatic Data Processing	~18x	3.0%	~61%	+7%
Paychex	~16x	4.7%	~95%	+5%
Paylocity	~22x	0.0%	n/a	+10%
Workday	~26x	0.0%	n/a	+13%

ADP sits in the middle of the HR/payroll complex: a higher forward P/E (~18x) than Paychex (~16x) but with a far safer ~61% payout ratio versus PAYX's ~95% and stronger enterprise reach and international scale. PAYX offers a richer 4.7% yield but thinner dividend coverage and slower growth. Faster growers Paylocity and Workday pay no dividend and trade at growth multiples. ADP's blend of mid-single-digit revenue growth, double-digit EPS, a 51-year raise streak and well-covered payout is the most durable dividend profile in the group.

Valuation

Price Targets & Scenarios

Scenario	Price Target	Assumptions	Probability
Bull Case	$300	Labor market re-accelerates, new-business bookings and pays-per-control inflect higher; client funds yields stay elevated; AI/Lyric HCM drives enterprise share gains and margin expansion above guide; multiple re-rates back toward 25x as a defensive compounder.	25%
Base Case	$250	Steady 6-7% revenue growth and 10-11% adjusted EPS growth per guidance; margins expand ~80bps; dividend compounds at high-single to low-double digits; multiple holds around 19-21x forward as the labor market stabilizes.	50%
Bear Case	$185	Employment slowdown deepens, compressing pays-per-control and bookings; falling rates cut client-funds interest income; PEO margin pressure persists; the multiple compresses toward 15-16x amid a defensive de-rating.	25%

Probability-Weighted Target: $246 (+11% from current price)

$246

Weighted

Bull $30025%

Base $25050%

Bear $18525%

Analyst Consensus

S&P Global Panel

$244

Hold / Consensus

Wall Street Avg

$265

Hold / Maintained

Street Median

$272

Neutral

Street High

$332

Buy / Bullish

Hold consensus across ~23-27 analysts. Roughly 26% Buy/Strong Buy, 53% Hold, 20% Sell. Average 12-month target ~$265 (range $230-$332) implies ~+11-20% upside from $221.84 — modest for a defensive Aristocrat near multi-year valuation lows.

Technical

Key Levels & Options Intelligence

S/RSupport & Resistance

52-Week High

$329.85

Street Avg Target

$265.00

Resistance

$235.00

200-Day MA

$229.50

Current Price

$221.84

50-Day MA

$214.00

Support

$205.00

52-Week Low

$188.16

OptOptions & Sentiment

Implied Volatility (30D): ~24% (moderate)
IV Percentile: ~58% (elevated)
Put/Call Ratio (OI): 0.95 · balanced
Short Interest: ~1.3% of float (low)
Days to Cover: ~2.5 days
Max Pain (near-term): ~$220
30D IV Skew: Mild put skew
Options Volume Trend: Normal · defensive holder base

Conviction Analysis

Systematic Conviction Score: 71/100 (Med-High)

Analyst Alignment

30%

FCF Visibility

25%

Catalyst Clarity

20%

Valuation Safety

15%

Mgmt Quality

10%

Best-in-class FCF visibility and management quality (51-year dividend Aristocrat, ~61% payout, well-covered) anchor a durable hold. Tempered by a Hold Street consensus, a softening labor market and rate-sensitive client-funds income that limit near-term catalysts. Reasonable ~18x valuation near multi-year lows provides a margin of safety for the dividend.

Risk & Ownership

Risk Assessment & Insider Signals

!Risk Factors

Labor market deceleration: ADP's pays-per-control and new-business bookings track private employment, which is slowing — April NER +109K but weekly Pulse fell to ~36K/week in May. A weakening jobs market directly pressures the core payroll franchise.
Falling rates compress client-funds interest: Interest on the ~$48B client-funds float (+14% to $404M in Q3) is a high-margin tailwind that reverses if the Fed cuts rates; the 3.3% average yield is rate-sensitive and a swing factor for EPS.
PEO margin pressure: PEO segment margin contracted 120bps to ~13% on zero-margin benefits pass-through, higher state unemployment-insurance costs and selling expenses — a persistent drag on a double-digit-growth segment.
Limited valuation upside / Hold consensus: At ~18-20x forward earnings with a Hold Street rating and ~+11% upside to the weighted target, the risk/reward is balanced rather than compelling; further multiple expansion needs a growth or rate catalyst.
Competitive share pressure in mid-market: Paylocity, Workday and Rippling compete aggressively in cloud HCM; ADP must keep winning enterprise (Lyric HCM) and defending SMB to sustain mid-single-digit organic growth.
Dividend growth deceleration: A multi-year earnings slowdown could slow the ~10-13% historical raise cadence toward low-single digits; the streak would survive but total-return appeal as a dividend grower would dim.

OOwnership & Insider Signals

Institutional ownership ~83%: Roughly 83% of shares are held by institutions, reflecting ADP's status as a core blue-chip, low-beta holding across index and quality-dividend mandates.
Vanguard the largest holder (~10.2%): Vanguard holds ~10.2% as the top institutional owner, followed by other major index and active managers including BlackRock, State Street and large quality/dividend funds.
Low insider ownership (~2%): Insiders own ~2% of shares; governance rests with a professional board and management rather than a founder block, consistent with a mature large-cap.
Retail / other ~15%: Retail and other holders make up roughly 15%, providing liquidity around a heavily institutional register.
Dividend-Aristocrat index demand: Membership in the S&P 500 Dividend Aristocrats (51 straight raises) creates structural passive demand from Aristocrat and quality-dividend ETFs, supporting a stable shareholder base.
Low short interest: Short interest sits near ~1.3% of float with ~2.5 days to cover — minimal bearish positioning, consistent with the stock's defensive, low-volatility profile.

Recommendation

Summary

Rating

HOLD

Conviction

Med-High

Price Target

$246

Timeframe

12 mo

Upside

+11%

Position Size

3%-5%

Entry Strategy

Tranche 1 — 40%

~$222

Initiate near current levels; the Aristocrat trades near its 52-week low at ~18x forward with a ~3.0% well-covered yield.

Tranche 2 — 35%

~$205

Add at the $205 support zone on any labor-market or rate-driven pullback to lift the starting yield.

Tranche 3 — 25%

~$190

Reserve for a flush toward the $188 52-week low to anchor cost basis and push the yield toward ~3.6%.