Automatic Data Processing, Inc. (ADP) DCF Valuation & Fundamental Primer
Automatic Data Processing, Inc. (ADP) currently trades at $254.51 with an enterprise value of $104.69B. Our proprietary institutional model rates Automatic Data Processing, Inc. at 63/100 (Grade: B · Mixed Fundamental Profile). The current market price prices in an implied 5-year revenue CAGR of 16.3% vs. historical growth of 20.0% (Fairly Priced to Fundamentals).
Institutional fundamental teardown of Automatic Data Processing, Inc. (ADP) covering SEC 10-K/10-Q cash flow conversion, SBC dilution friction, and Reverse-DCF valuation hurdles.
Automatic Data Processing, Inc. (ADP) 3-Scenario DCF Valuation Range
Stress-test ADP's 5-year growth, target FCF margin, WACC, terminal methodology, and SBC/dilution friction in real time.
Split between 5-Year Explicit Cash Flows and Discounted Terminal Value
2D Institutional Valuation Sensitivity Heatmap
Implied share price & upside/downside spread across 25 valuation states (Current Price: $254.51).
| WACC \ Terminal | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 8.5% | $270.18 +6% | $288.26 +13% | $309.35 +22% | $334.28 +31% | $364.20 +43% |
| 9.3% | $240.74 -5% | $254.99 +0% | $271.34 +7% | $290.31 +14% | $312.58 +23% |
| 10.0% | $216.54 -15% | $227.99 -10% | $240.97 -5% | $255.80 +1% | $272.92 +7% |
| 10.8% | $196.30 -23% | $205.66 -19% | $216.16 -15% | $228.01 -10% | $241.50 -5% |
| 11.5% | $179.12 -30% | $186.89 -27% | $195.51 -23% | $205.16 -19% | $216.00 -15% |
Institutional Software Quality Scorecard (63/100 · Grade B)
Viable recurring software business but carries notable dilution, lower margins, or higher leverage.
Solid cash generation with minor working capital absorption
Minimal dilution friction; management compensation aligned with shareholders
Sub-par gross margins; higher cost of delivery or hardware/services mix
Moderate leverage or cash burn; monitor liquidity runway
Core Investment Strengths & Moats
- Low dilution friction: SBC is only 1.3% of revenue
Key Operational & Dilution Risks
- Lower software gross margins (50.8%), indicating higher hosting or service delivery drag
Reverse-DCF Solver: What Growth is Priced Into ADP?
Market implies 16.3% annual revenue growth over next 5 years (17.2% dilution-adjusted), in line with company run-rate.
Headline Reverse-DCF ignores Stock-Based Compensation (1.3% of revenue) and annual share dilution (0.2%/yr). Accounting for both requires 17.2% 5-year revenue CAGR to justify $254.51/sh on a true per-share economic cash flow basis.
Automatic Data Processing, Inc. (ADP) 5-Year Fundamental Forecast
| Statement Line Item | TTM Audited Base | TTM | Y1 | Y2 | Y3 | Y4 | Y5 |
|---|---|---|---|---|---|---|---|
| Revenue | $20.56B | $20.56B | $23.65B | $27.19B | $31.27B | $35.96B | $41.36B |
| Gross Profit | $10.45B | $10.45B | $12.02B | $13.82B | $15.90B | $18.28B | $21.03B |
| Operating Income (EBIT) | $5.41B | $5.41B | $6.22B | $7.16B | $8.23B | $9.46B | $10.88B |
| Stock-Based Compensation (SBC) | $266.1M | $265.2M | $305.0M | $350.8M | $403.4M | $463.9M | $533.5M |
| Unlevered Free Cash Flow (FCF) | $4.59B | $4.59B | $5.28B | $6.07B | $6.99B | $8.03B | $9.24B |
| SBC-Adjusted True Cash Flow | $4.33B | $4.33B | $4.98B | $5.72B | $6.58B | $7.57B | $8.71B |
Software & Cloud Services Peer Comparables & Rule of 40 Regression
Rule of 40 vs. EV / Revenue Multiple Regression
OLS Fit: EV/Rev = -28.7 + 0.79 × (Rule of 40) · R² = 82%Stocks below the gold regression line trade at a discount relative to their Rule of 40 compounding efficiency.
| Company | Ticker | Market Cap | TTM Revenue | Gross Margin | FCF Margin | Rule of 40 | SBC % Rev | EV / Rev |
|---|---|---|---|---|---|---|---|---|
| Automatic Data Processing, Inc. | ADP | $102.94B | $20.56B | 50.8% | 22.3% | 42.3% | 1.3% | 5.3× |
| ServiceNow | NOW | $152.61B | $10.98B | 79.2% | 31.1% | 54.2% | 15.9% | 13.9× |
| Workday, Inc. | WDAY | $50.35B | $8.00B | 75.0% | 27.4% | 43.9% | 19.0% | 6.4× |
| Salesforce | CRM | $217.10B | $37.90B | 77.2% | 32.8% | 42.8% | 8.4% | 5.8× |
| Datadog | DDOG | $46.05B | $2.68B | 80.8% | 31.1% | 57.7% | 21.3% | 17.4× |
| Snowflake Inc. | SNOW | $71.79B | $3.63B | 66.5% | 25.2% | 57.7% | 40.8% | 20.0× |
| Hubspot | HUBS | $19.89B | $2.63B | 85.0% | 21.3% | 52.7% | 19.2% | 7.7× |
| Peer Cohort Median Benchmark (N=6) | 78.2% | 29.2% | 53.5% | 19.1% | 10.8× | |||
EV / Revenue Multiple Compression Stress Test
| Multiple Scenario | EV / Revenue | Implied Enterprise Value | Implied Equity Value | Implied Share Price | Delta vs Current |
|---|---|---|---|---|---|
| Current Multiple | 5.3× | $109.98B | $102.94B | $254.51 | 0.0% |
| -20% Multiple Compression | 4.3× | $87.99B | $80.94B | $200.12 | -20.0% |
| -35% Multiple Compression | 3.5× | $71.49B | $64.44B | $159.33 | -35.0% |
| Software Baseline Floor (5.0× EV/Rev) | 5.0× | $102.80B | $95.76B | $236.76 | -6.5% |
Frequently Asked Questions: Automatic Data Processing, Inc. (ADP) Valuation
What is Automatic Data Processing, Inc. (ADP)'s intrinsic DCF valuation and implied share price?
Based on audited SEC 10-K/10-Q filings and a 5-year 3-statement discounted cash flow (DCF) model, Automatic Data Processing, Inc. (ADP) has a Base Case implied value of $241.43 per share (with a Bear Case of $105.54 and a Bull Case of $417.64), compared to its current price of $254.51. The model discounts projected free cash flows at a 10.0% WACC and a 2.5% terminal growth rate.
What is Automatic Data Processing, Inc. (ADP)'s Rule of 40 score and Free Cash Flow margin?
Automatic Data Processing, Inc. achieves a Rule of 40 score of 42.3%, combining a 20.0% revenue growth run-rate with a 22.3% TTM free cash flow margin on $20.56B in trailing twelve-month revenue. In the Software & Cloud Services peer cohort, the median Rule of 40 benchmark is 53.5%.
What revenue growth rate is priced into ADP stock according to Reverse-DCF analysis?
At $254.51 per share (Enterprise Value of $109.98B), our Reverse-DCF solver indicates the market is pricing in a 5-year implied revenue CAGR of 16.3%, compared to Automatic Data Processing, Inc.'s historical CAGR of 20.0%. Overall market expectations are rated as "Fairly Priced to Fundamentals".
How does Automatic Data Processing, Inc. compare to Software & Cloud Services software peers?
Automatic Data Processing, Inc. (ADP) earns an institutional Software Quality Score of 63/100 (Grade B — Mixed Fundamental Profile). Across its Software & Cloud Services peer group (NOW, WDAY, CRM, DDOG, SNOW), the cohort trades at a median EV/TTM Revenue multiple of 10.8× and a median gross margin of 78.2%.
How does Stock-Based Compensation (SBC) impact Automatic Data Processing, Inc. (ADP)'s valuation?
Automatic Data Processing, Inc. recorded $266.1M in TTM stock-based compensation (1.3% of revenue). When treating SBC as a cash-equivalent compensation expense, Automatic Data Processing, Inc.'s SBC-adjusted free cash flow yield is 4.2%, scoring 25/25 on our Shareholder Dilution Friction pillar.