Automatic Data Processing Inc (ADP) stock analysis

P/E below its 5-year median

Automatic Data Processing's P/E of 27.2 is below its own 5-year median of 29.7.

P/E below the industry

Automatic Data Processing's P/E of 27.2 is below the Computer Programming, Data Processing, and Other Computer Related Services median of 27.6.

EV/EBITDA below its 5-year median

Automatic Data Processing's EV/EBITDA of 17.7 is below its 5-year median of 18.9.

P/B above the industry

Automatic Data Processing's price-to-book of 23.75 is above the Computer Programming, Data Processing, and Other Computer Related Services median of 3.32.

Trading above fair value

The share price of $306.36 is above our fair value estimate of $294.99.

Margin of safety under 20%

The price is 3.9% above fair value, so there is no margin of safety.

Revenue growing under 10% a year

Revenue grew 6.8% a year over the last three fiscal years, short of the 10% we look for.

EPS growing 10%+ a year

Diluted EPS grew 10.0% a year over the last three fiscal years.

Earnings growth not accelerating

Net income grew 9.4% over the last twelve months, against a 5-year average of 11.2% a year.

Growing slower than the industry

Revenue grew 6.5% over the last twelve months; the Computer Programming, Data Processing, and Other Computer Related Services median is 9.6%.

Guidance lowered

Automatic Data Processing lowered its Fiscal 2027 PEO Services revenue, excluding zero-margin benefits pass-throughs, growth outlook on Jul 29, 2026.

Gross margin improving

Gross margin was 46.6% over the last twelve months, against 45.9% a year earlier.

Return on equity over 15%

Return on equity was 78.9% over the last twelve months and averaged 81.8% over five years.

Return on invested capital

Needs operating income and invested capital.

Return on equity above the industry

Automatic Data Processing's return on equity of 78.9% is above the Computer Programming, Data Processing, and Other Computer Related Services median of -1.2%.

Earnings grew over 5 years

Net income grew 11.2% a year on average over the last five fiscal years.

Net margin above its 5-year average

Net margin was 20.3% over the last twelve months, against a 5-year average of 19.3%.

Net margin above the industry

Automatic Data Processing's net margin of 20.3% is above the Computer Programming, Data Processing, and Other Computer Related Services median of -4.8%.

High debt

Debt is 97.8% of shareholders' equity, above the 40% we consider low.

Debt rising against equity

Debt to equity rose from 52.7% five years ago to 97.8%.

Debt covered by cash flow

Operating cash flow over the last twelve months equals 109% of total debt.

Interest coverage

Interest expense is not reported separately.

Short-term assets cover short-term debts

Current assets are 1.03 times current liabilities.

Bankruptcy risk in the grey zone

The Altman Z-score is 2.23; above 3 is the safe zone and below 1.8 the distress zone.

Pays a dividend

Automatic Data Processing paid dividends worth 2.2% of the share price over the last twelve months.

Yield below Treasuries

The 2.2% yield is below the 4.4% on a 1-year Treasury.

Yield below the top quarter

The top quarter of US dividend payers yield 3.8% or more; Automatic Data Processing yields 2.2%.

Dividend not cut

The dividend per share has not fallen by more than 10% in any of the last 10 fiscal years.

Covered by earnings

Dividends take 59.1% of net income.

Cash-flow cover

Needs dividends paid and free cash flow.